Malaysia’s Household Spending To Grow By 3%

Fitch Solutions Country Risk & Industry Research has projected a 3 percent y-o-y growth in household spending in Malaysia. 

The research house estimated that household spending had contracted by -4.3 percent over 2020. 

“Malaysian households have been supported by the government, partially shielding them from the worst of the economic impact. However, fiscal constraints will mean that not as much support can be provided over 2021 and this is a risk, should infections increase again and restrictions are required,” it said. 

The research house has also revised down its consumer spending forecasts for the year, as a result of surging cases and re-implementation of stricter restrictions on movement and non-essential retail. 

“We have revised down our real household spending growth forecast for 2021, to 3.0% y-o-y, from the previous forecast of 11.0% y-o-y.” 

The estimated -4.3 percent y-o-y drop in 2020 real household creates a low y-o-y base for 2021

to grow from. In nominal terms, total household spending will be worth RM922 billion (US$222 billion) in 2021, slightly lower than the RM932.9 billion (US$225.3 billion) estimated for the pre-Covid-19 environment in 2019.

“We also note that continued restrictions on inter-district and inter-state travel within the Klang Valley (centered on Kuala Lumpur and includes its adjoining cities and towns in the state of Selangor), which accounts for approximately 60% of retail sales in the country, will delay this recovery,” the Country Risk team said. 

Additionally, the recent lockdown will result in resurgence in unemployment which would also lead to dimmer prospects for a recovery in domestic demand. 

Unemployment rates according to the research house in 2021 will remain elevated as businesses, especially small and medium-sized enterprises slowly recover and increase employment. 

“As such, we project that the unemployment will only begin falling from H221 onwards. Additionally, we see inflation picking up slightly over 2021, as increasing demand from H221 puts upward pressure on prices. However, we do not expect this level of inflationary pressure to significantly impact our outlook for Malaysia.” 

Commenting on possible future stimulus packages, “Any stimulus measures that will be announced in the coming weeks are unlikely to top what was announced in 2020 given the constraints the government faces, with the 2020 stimulus already being relatively small compared to what other Asian economies have implemented, such as Singapore and Hong Kong,” it said. 

“The high public debt load is likely to have a negative impact on investor sentiment towards Malaysia and could raise its borrowing costs further. We highlight this as a significant risk to the Malaysian consumer, who is likely to face another six months of restrictions and subsequent job losses and/or pay cuts,” the team added.

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