‘Solid growth’ in consumer spending seen in Malaysia: report

Real household spending is projected to rise 5.1% year-on-year.

Consumer spending in Malaysia will see a “solid growth” with real household spending rising by 5.1% year-on-year, largely driven by private consumption and fixed investment in 2022, Fitch Solutions projected.

This is an improvement from the estimated 0.5% growth in 2021, weighed down by the impact of the pandemic on domestic demand.

It also estimated real household spending to stand at MYR768.1b in 2022, up by 1.8% from its pre-pandemic level.

Retail sales grew 4.3% in 2021 due to the low-base effect, stemming from the 5.3% contraction in 2020.

“This high frequency data suggests that retail sales in Malaysia have still not recovered to pre-Covid-19 levels,” the report read.

Fitch noted that a higher vaccination rate will be needed to “decouple” the stringent restrictions Malaysian authorities impose due to rising COVID-19 cases. This will also allow for a “broader recovery” in retail sales.

“We note further downside risks to our forecast given the high level of political risk since the beginning of H221 and the risk that the Covid-19 outbreak could worsen over the coming months, which could further affect both retail sales and consumer confidence,” Fitch reported.

It added its growth forecast aligns with its projections that Malaysia’s economy will grow by 5.5% in 2022.

Constant lockdowns have dampened Malaysia’s recovery from the pandemic. Its employment rate is only seen to soften in 2022, declining to an average of 3.9% from 4.7% of the labour force in 2021.

“The largest threat to the Malaysian economy comes from a rapid unwind of the household credit boom that has taken place over the past decade since the global financial crisis. This has the potential to result in a collapse in domestic demand amid declining property prices,” Fitch said.

“This is not our core view, but risks are rising with the severe economic disruptions brought on by the Covid-19 pandemic.”