KUALA LUMPUR (Nov 15): Malaysian consumers and businesses have grown more pessimistic in the third quarter of the year as inflationary pressures eat into spending power while slowing external demand weighs on sales amid rising operating costs, according to studies done by the Malaysian Institute of Economic Research (MIER).
The Business Conditions Index continued to decline in 3Q2023, falling by 2.7 points to 79.7 points — the lowest level since 2Q2020 during the initial outbreak of Covid-19 in the country — compared with 82.4 points in 2Q2023 and 99.8 points in 3Q2022, MIER said in a statement on Wednesday.
“While domestic orders have increased slightly, export orders have reduced, and meanwhile businesses are concerned about increasing costs: 56% reported that their wage costs had increased this quarter, while only 23% reported increasing their sales prices,” said the research institute.
The institute’s Consumer Sentiments Index also continues its negative trend, dropping 11.9 points quarter-on-quarter to 78.9 points in 3Q2023 — the lowest since 2Q2021, when Malaysia was in a new lockdown phase.
MIER’s survey found that 45% of respondents’ finances have worsened in 3Q2023, compared to just 10% who say theirs have improved.
In addition, 40% of respondents expect their finances to worsen in future compared to just 15% who expect an improvement, the survey found.
“These results match with predictions from respondents around cost of living, with 91% expecting inflation to rise compared to only 20% expecting incomes to rise,” said MIER.
The survey found that consumers are not only negative on the outlook of their future finances, but also pessimistic about their incomes growth, job opportunities and inflation level.
“Malaysians seem to be preparing for the worst in terms of prolonged stagnant wages and inflation growth,” it said.
“Given slow but steady growth of the economy and encouraging reductions in inflation, it may seem difficult to understand why both businesses and consumers are so pessimistic.
“Nonetheless, combating this and encouraging spending and investment must be a top priority to prevent further reductions in growth going forward,” it added.
Overall, MIER said the findings of its survey in 3Q2023 showed a mixed picture for Malaysia.
"On the one hand, the picture for domestic growth is positive relative to other countries in the region. Positive progress has also clearly been made towards reducing the inflationary pressures and, except for food and drink, inflation has now reached a manageable level," it said, adding that political instability, which had plagued Malaysia since 2019 has largely dissipated with the formation of the Unity Government while the recent state polls did not cause upheavals.
"On the other hand, there are some concerning results in terms of imports and exports... These results should pose a significant concern for the government as they could very easily turn into reduced growth if people are unwilling to spend their savings for fear of reduced spending power in the future,” it cautioned.