Stagnating Economy To Hit Disposable Income: Fitch

The economic environment will continue to put significant pressure on Malaysian households’ disposable income, which will be reflected in their spending levels in H221 and likely spill over to 2022 according to Fitch Solutions Country Risk & Industry Research.

It says that as a result, it estimates that private consumption contracted by 11.5% q-o-q in Q221 (compared to the five-year average Q2 q-o-q growth rate of 2.4% pre-pandemic) and will contract by 2.0% in 2021.

Fitch says that although the employment outlook will start to improve beyond 2021, it said that unemployment in 2022 will remain above 2019 (pre-Covid-19) levels at 3.6%.

Fitch notes that the household disposable incomes will feel the pressure as a consequence of a stagnating economy. “We highlight that in Q420, 8.8% of workers in Malaysia are paid a basic salary that is below the minimum wage of RM1,200 per (USD285) per month, with fresh graduates receiving lower pay packages in 2020 than in 2019,” it said.

Considering the current Covid-19 situation in Malaysia, wages for graduates and minimum wage workers will likely remain depressed over 2021 and 2022, Fitch said,” it says

“This dynamic will force consumers, especially in the lower income brackets, to trade down on price points and focus on staples and essential food and drink categories as an outcome.“

“The Research house said that  companies operating in Malaysia will therefore have to navigate the challenges the country is facing, taking into consideration the weakened consumer appetite.“A sector that we believe has a navigation tool at its disposal is the mass grocery retailers, with the environment outlined above a driver for demand in discount. We note that in 2019, Malaysia’s,” it says.

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