KUALA LUMPUR, Oct 11 — BMI, a Fitch Solutions company, holds a positive but cautious outlook for consumer spending in Malaysia in 2024, “as the economic recovery feeds through to stronger real consumer spending growth over the year.”
The financial research firm reckons that the consumer spending outlook will be more positive, relative to 2023, as economic growth persists and consumption levels normalise.
“Easing inflationary pressures and healthy employment will form the base for a stable consumer spending outlook,” BMI said in a report.
Risks to this outlook, it added, “would be higher than anticipated inflation and more aggressive economic weakness, which will weigh heavier on household purchasing power.”
“We forecast household spending to grow 5 per cent year-on-year (y-o-y) over 2024, in real terms, to a value of RM909.5 billion at 2010 prices.
“Household spending over 2024 will mark the return to pre-Covid levels of growth whereby household spending grew at a real average rate of 5.2 per cent during the 2015-2019 period,” it said.
However, it viewed that spending will be constrained by an environment of high debt levels and servicing costs while easing inflation and a tight labour market will support spending as real wage growth returns to positive territory.
BMI highlighted that retail sales continued its downward trajectory, with consumer confidence levels largely on the decline, reflecting a weakening consumer mindset, as inflationary pressures in certain commodities such as food and fuel continued to weigh on low- and mid-income households.
It said the latest data suggested that consumer confidence in the second quarter of 2023 averaged at 90.8, a fall from 99.2 in the first quarter of 2023 and the lowest consumer confidence figure since the second quarter of 2022.
The latest retail sales data, it noted, has also been slowing since June 2022, reaching a rate of 5.5 per cent year-on-year in July 2023 (the latest data available), the lowest since December 2021, and highlighted the continuous downward trend for retail sales.
“The slowdown is likely due to the fading of growth from base effects and of pent-up demand from the lifting of Covid-related restrictions,” it said.
Inflation outlook
As for the inflation outlook, it said that compared to other markets, inflation in Malaysia has been relatively tame, peaking at 4.7 per cent year-on-year in August 2022 and the latest data puts inflation at 2 per cent year-on-year in August 2023.
This is the lowest inflation reading since March 2021 and has returned to what Malaysian households were used to prior to the pandemic, where inflation averaged two per cent year-on-year over the 2015 to 2019 period.
“Our country risk team forecasts inflation will maintain at this level, averaging 2 per cent over 2024,” it shared.
Employment outlook
On the employment outlook, BMI said the unemployment rate in Malaysia (as a percentage of the labour force) was 3.4 per cent in July 2023 (the latest data available), which was at its lowest level since February 2020, which also underpinned its positive consumer outlook.
“Our country risk team forecasts unemployment to average 3.1 per cent of the labour force over 2024, similar to that of 2023.
“This comes on the back of strong foreign investments, improving tourism sector performance, and increased activity in key sectors of agribusiness, electronics and manufacturing.
“However, should economic conditions worsen in the market, there is a risk of elevated unemployment, which will quickly feed through into a weaker consumer outlook,” it said.
Household debt
On the household debt outlook, it highlighted that Malaysia has witnessed a household credit boom over the past few years.
“We highlight that the rapid unwinding of this could pose a risk to domestic demand. At its last estimate, Bank Negara Malaysia put household debt at 66.5 per cent of gross domestic product in the fieat quarter of 2023.
“Similarly, as repo rates and interest rates begin to rise, so too will debt servicing costs. This would mean households will increasingly have to allocate disposable income towards debt financing, placing downward pressure on consumer spending going forward,” it noted.
However, BMI viewed that Malaysian households are relatively well insured against rising debt costs, noting that in 2022 (latest data), household debt in Malaysia totalled RM1.5 trillion, but household financial assets totalled RM3.0 trillion.
“Considering the financial soundness of these households, liquid financial assets to total debt was recorded at 135.4 in 2022, slightly lower than the 143.3 recorded in 2019. This highlights that households do have additional room to absorb rising debt costs if needed,” it added.
— Bernama
