KUALA LUMPUR, May 5 (Xinhua) -- Malaysia's business sentiment turned pessimistic in the first quarter of 2026, as external uncertainties weighed on corporate outlook, RAM Rating Services' survey found on Monday.

The RAM Business Confidence Index (BCI) dropped sharply to 42.2 in the first quarter from 53.1 in the preceding quarter, slipping below the neutral 50-point mark and signaling weaker expectations for the next three months.

The decline was broad-based, with all sub-indices registering quarter-on-quarter contractions, particularly in sales, profitability and hiring.

The pullback in business sentiment suggests firms are increasingly unsettled by external developments, particularly the escalation of military conflict.

"The escalation of military conflict has amplified uncertainty in global energy markets, with spillovers to oil prices and global supply chains and knock-on effects on operating costs," said Chris Lee Wai Kit, RAM Holdings Berhad Group chief executive officer and executive director.

He added that businesses are reassessing risks amid the volatile environment.

Despite the cautious outlook, Lee noted that capital expenditure intentions remained marginally positive.

Meanwhile, weak economic conditions and rising costs continued to dominate business concerns.

About 71 percent of firms cited soft economic conditions as a key challenge in the first quarter, a sharp increase from 44 percent in the previous quarter.

Although easing slightly, the cost of doing business remained a major issue, with 57 percent of respondents highlighting it as a concern compared with 66 percent previously.

These two concerns are reflective of the impact of energy market disruptions caused by the Middle East conflict on business operations, both currently and in the foreseeable future, said the survey. ■