KUALA LUMPUR (April 24): BMI, a Fitch Solutions company, holds a cautious but positive outlook for consumer spending in Malaysia over 2024, as the economic recovery feeds through to strong real consumer spending growth over the full year.

In a report on Tuesday, the firm said household spending growth will be more positive, relative to 2023, as economic growth persists and consumption levels normalise.

“We forecast household spending to grow by 5% year-on-year (y-o-y) over 2024, in real terms, to a value of RM903.8 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% y-o-y during the 2015-2019 period],” it said.

BMI 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 consumer confidence levels have largely been declining, reflecting a weakening consumer mindset as inflationary pressures in certain commodities such as food and fuel continue to weigh on low- and mid-income households.

The firm said latest data suggest that consumer confidence in 4Q2023 averaged at 89.4, an increase from the 78.9 in 3Q2023.

“We note that this is still one of the lowest consumer confidence figures in Malaysia since 2Q2022 when it hit 85.9 with the average consumer confidence in the country between 2005 and 2023 averaging 96.5.

“Latest retail sales data has also been slowing since June 2022.

“Although February 2024 [latest data available] retail sales came in at 5.8% y-o-y which is a five-month high, this came after the 2.6% y-o-y recorded in January 2024 which was the latest growth in retail sales since September 2021,” it said.

BMI said the larger slowdown trend is likely due to the fading of growth boosts from base effects and of pent up demand from the lifting of Covid-related restrictions and while February 2024 figures have proven optimistic, the longevity of this recovery will require further monitoring.

BMI said a high level of household debt remains a risk to its consumer outlook, as it not only constraints future borrowing capacity but impacts current disposable income levels.

“This is particularly true as debt servicing costs rise in response to increases in interest rates.

“In many markets, central banks rapidly hiked interest rates during the 2022-2023 high inflationary period, reaching levels to which most households have not been accustomed over the past decade,” it said.

BMI said Malaysia has witnessed a household credit boom over the past few years.

“We highlight that rapid unwinding of this could pose a risk to domestic demand. At its last estimate, the Bank Negara Malaysia put household debt at 68.5% of GDP in 3Q2023. 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 said.