Business sentiment weakens further in 2Q as US tariffs, cost pressures weigh
by RUPINDER SINGH
MALAYSIAN businesses are bracing for rougher seas in the near term, as the RAM Business Confidence Index (RAM BCI) slipped further to 40 in the second quarter of 2025 (2Q25) from 41.1 in 1Q25 — marking the second straight quarter of negative sentiment on business prospects.
The index reading, which remains well below the neutral level of 50, reflects growing anxiety among firms over deteriorating external conditions, particularly the fallout from escalating US protectionist policies.
'This marks the second consecutive quarter of negative sentiment on business prospects, which aligns with the rapidly escalating risks in global trade stemming from rising US protectionism policy,' RAM said in a statement released last week.
Three out of the five sub-indicators — sales, capital investment and capacity utilisation — posted quarter-on-quarter (QoQ) declines, underscoring a broader pullback in business activity.
While the hiring and inventory sub-indices showed some resilience, they remained below the neutral threshold, suggesting that firms are still in defensive mode.
The latest survey, conducted between May 29 and June 28, involved 33 firms across multiple sectors. RAM's findings point to persistent headwinds, with 80% of respondents identifying the rising cost of doing business as their top concern — a trend that has remained dominant over the past year.
Other major challenges cited include heightened competition (63%) and weak economic conditions.
More worryingly, supply chain disruptions are re-emerging as a key issue.
The share of firms reporting supply chain issues jumped by 11 percentage points to 40% in 2Q25.
Tariff Fears in Focus
A special section of this quarter's survey homed in on the perceived impact of US tariffs on Malaysian goods, a policy shift that has rattled exporters and manufacturers alike.
Two-thirds of firms anticipate negative fallout, with 27% of respondents expecting a 'major negative impact', while 18% foresee a 'moderate' and another 18% a 'minor' impact.
Sales and revenue are expected to be hit hardest, followed by profit margins, supply chain performance and cashflow.
Nearly half of the respondents plan to cope by cutting operational costs or adjusting pricing strategies to remain competitive.
'In response, firms are mainly adopting cost-related strategies to mitigate tariff impacts. About 42% are focusing on cutting operational expenses, while 39% are adjusting pricing strategies to remain competitive,' RAM noted.
Meanwhile, 33% of firms said they would diversify their product or service offerings and 30% are looking to reduce reliance on exports altogether.
Only a small portion — 18% — plan to explore alternative export markets, indicating limited room for manoeuvre in the short term.
Industry Calls for More Policy Support
Amid mounting challenges, the call for stronger government intervention is growing louder.
Businesses overwhelmingly expressed the need for greater access to financing and working capital, with 53% listing this as the most helpful form of support. Grants or direct subsidies (48%) and export promotion assistance (39%) also ranked high on the wishlist.
'Businesses are calling for more assistance from the government, especially in terms of better access to financing and working capital. Grants and direct subsidies are equally in demand to help offset the challenges posed by trade tensions,' RAM said.
The uncertain global trade environment and rising costs have greatly shadowed near-term corporate confidence.
However, there are still glimmers of resilience — firms are not entirely pulling back from growth plans.
'While businesses remain cautious, it is encouraging to see that companies are still investing and hiring,' said RAM Holdings Bhd group CEO/ED Chris WK Lee.
'It is crucial that government and industry stakeholders work together to respond to the new challenges for businesses to survive and thrive,' he added.
Still, with overall business confidence slipping deeper into negative territory, any recovery in investment and production will depend heavily on how quickly policymakers can respond to the evolving trade landscape and domestic cost pressures.
This article first appeared in The Malaysian Reserve weekly print edition
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