KUALA LUMPUR: SME Bank Malaysia's biannual survey on small and medium enterprise (SME) sentiment reported growing optimism among the group which makes up the majority of businesses in Malaysia.
Its SME Sentiment Index for the second half of 2024, showed an uptick in sentiment among micro, small and medium enterprises (MSME), its third consecutive increase.
The index rose to 55.8 points up from 54.7 in the first half of 2024.
SME Bank said MSME's optimism was mainly driven by improved economic growth and business sales expectations as well as expansion plans and hiring more workers.
As a leading economic indicator, this index serves to gauge MSMEs' view of the business environment which can be the yardstick in measuring how the overall economy is expected to behave.
The SME Sentiment Index Survey, conducted between August and November 2024, hit a new record high of 1,485 respondents.
SME Bank said the score aligns with other forward-looking indicators such as the Department of Statistics Malaysia's (DOSM) Business Tendency Survey, which predicts favourable business conditions in the coming months.
Among the respondents, 63 per cent of large businesses foresee economic expansion, compared to 50 per cent of micro businesses.
This marks a reversal from the first half of the year where large businesses were the most pessimistic while micro businesses were relatively optimistic. This shift is attributed to robust domestic demand and improvement in international trade, with merchandise trade volume projected to grow by 3 per cent year on year (YoY) in 2025, up from an estimation of 2.7 per cent in 2024.
Moreover, micro-sized businesses, while less exposed to exports at 5 per cent currently, even though they remain the most keen to tap into foreign markets, with 20 per cent expressing a desire to expand internationally.
Meanwhile, among sectors, the accommodation industry is the most optimistic with 72 per cent expecting growth which aligns with the steady recovery of tourism in Malaysia.
From January until September 2024, Malaysia welcomed 18.4 million tourists up from RM 14.5 million during the same period in 2023.
Furthermore, a higher government allocation of RM1.4 billion in Budget 2025 for maintaining tourist attractions is expected to further grow the sector.
"We foresee the tourism sector to fully recover in 2025 as improving household disposable income would also lend support to greater domestic tourism activities," SME Bank said.
68 per cent of SMEs in the mining space were also optimistic of a better performance for the sector in 2025, despite the Ministry of Finance projecting a 1.0 per cent GDP contraction for the industry in 2025.
Regionally, businesses in 13 of Malaysia's 16 states and federal territories foresee economic growth with Negeri Sembilan and Pahang recording the highest at 72 per cent, while Kelantan showed the most caution with 49 per cent anticipating an economic slowdown. However, businesses are also facing mounting cost pressure with a significant amount of 87 per cent anticipating rising costs in the next 6 to 12 months, up from 79 per cent recorded in the previous survey.
Moreover, large and medium-sized businesses in particular are the most affected by labour costs, while smaller businesses are more sensitive to raw material price hikes.
Sector-wise, mining quarrying and chemical manufacturing industries report unanimous concern over rising costs followed by health activities at 96 per cent, accommodation at 93 per cent and food manufacturers at 91 per cent. Meanwhile, the hiring landscape shows a cautious yet optimistic outlook as 49 per cent of MSMEs are looking to increase their hiring over the next 6 to 12 months compared to 37 per cent in the previous survey while 43 per cent choose to maintain their current workforce level.
Overall, SME Bank concluded that they are confident with MSMEs resilience as they continue to show great performances and increasing potential growth in becoming the country's key pillars of growth and stability.