KUALA LUMPUR (Jan 12): BMI, a Fitch Solutions company, said it holds a cautious but positive outlook for consumer spending in Malaysia over 2024 as the wider economy recovers and growth figures return to a more stable medium-term (2024-2028) trajectory.

In a note on Thursday (Jan 11), the firm said high-frequency data indicates that consumer confidence and retail sales will continue to be sluggish over the short term, while easing inflationary pressures and healthy employment will form the base for stable consumer spending outlook.

High debt levels of households amid elevated interest rate environments remains as the key risk to the outlook over 2024, said BMI.

It said this will require consumers to allocate more of their budgets to debt repayments, constraining their ability to spend on other goods and services.

BMI said household spending growth will be more positive, relatively to 2023, as economic growth persists and consumption levels normalise.

“We forecast household spending to grow 5.1% y-o-y (year-on-year) over 2024, in real terms, to a value of RM910 billion (at 2010 prices).

“Household spending over 2024 will mark the return to pre-Covid levels of growth (household spending grew at a real average rate of 5.2% during the 2015-2019 period),” it said.

The firm said spending will be constrained by an environment of high debt levels, and its servicing costs.

However, it said easing inflation and a tight labour market will support spending, as real wage growth returns to positive territory, supporting purchasing power over the year.

BMI said wider economic challenges facing households and consumers continue to stem from the reopening of economies after the Covid-19 pandemic.

The firm said inflationary pressures are driven by demand-pull and cost-push inflation.

It said in an attempt to rein in inflation, central banks have hiked their policy rates at some of the quickest rates historically, making the debt issued during the historically low interest rate period of 2015-2019 less valuable.

Household wealth has also been driven to historic levels by strong performance in equity markets and higher house prices.

“However, many property markets are weakening, while company guidance has been turning more negative.

“Should this accelerate, a sizeable drop in consumers' wealth can lead to a quick cut in consumption,” it said.