KUALA LUMPUR (Jan 29): BMI, a unit of Fitch Solutions, expects consumer spending growth in Malaysia to remain steady in 2026, as low inflation and stable interest rates should help support household demand.

However, in a research note on Thursday, BMI said real household spending, which is adjusted for inflation, is expected to grow by 4.1% in 2026, down from an estimated 4.4% in 2025. 

"This growth outlook reflects Malaysia’s low inflationary environment (despite a forecast uptick in inflation over the short term) and a stable labour market. Downside risks remain, as high debt levels leave Malaysian households vulnerable to elevated interest rates," said BMI in a note on Thursday.

The research firm said Bank Negara Malaysia’s decision to keep the overnight policy rate (OPR) unchanged in November 2025 is expected to keep borrowing and loan repayments manageable for households.

BMI said Malaysia’s economic growth is expected to slow due to weaker global demand, higher US tariffs and tighter government spending. As earlier economic activity fades, this is likely to weigh on growth through the year.

“Economic momentum is expected to fade as frontloaded activities taper off, with the drag on growth likely to last well into 2026,” said BMI.

The Fitch unit also noted that job conditions are expected to remain stable but may soften slightly. Unemployment was forecast to average about 3.1% in 2026, compared with 2.9% in November 2025. BMI said employment should continue to be supported by foreign investment, tourism and manufacturing activity, although risks remain if global conditions worsen.

These include trade tensions, rising import costs, and geopolitical risks in regions such as Ukraine, the Middle East and the South China Sea, which could affect hiring and consumer confidence.

“As businesses navigate these challenges, consumers will likely continue their cautious approach to spending, shifting further away from durable goods towards essential services,” said BMI.

On household spending, BMI said it is expected to stay above pre-pandemic levels but growth may be limited by high household debt. Household debt stood at 69.9% of gross domestic product (GDP) in the second quarter of 2025, which may restrict how much households are able to spend, especially if borrowing costs rise.

Analysts expect inflation to increase slightly but remain low by historical standards with forecasts to average 1.9% in 2026. Stable food prices, which account for the largest share of household spending, should help households manage living costs.

BMI added that higher public sector wages and a slightly stronger ringgit could offer some support to household incomes. However, it said consumers are likely to remain cautious in 2026, focusing spending on essentials amid ongoing global economic uncertainty.