Malaysia’s consumer spending is expected to recover in 2022, according to Fitch Solutions, up from a contraction estimated for 2021 as COVID-19 curbs continued to weigh on domestic demand.
Total consumer spending fell 5.4% to RM855 billion over 2021 from RM905 billion reported in 2019, the pre-Covid environment.
“As such, the Malaysian consumer recovery from Covid-19 will only begin in 2022. We note, however, that the recovery will be rapid enough to total RM915 billion in 2022, building slightly on the figure recorded pre-pandemic (2019),” said the research arm of Fitch Ratings in a report.
Retail sales have been weak this year as a result of prolonged lockdown restrictions affecting consumers and retailers, particularly in the Klang Valley, which accounts for 60% of Malaysia’s retail sales, according to the report.
In the long run, a significant increase in consumer spending was demonstrated after a large percentage of the population was vaccinated, resulting in a reduction in COVID-19 deaths and infections, which led to the gradual relaxation of restrictions, boosting consumer buying and retail markets.
“Although vaccinations are accelerating, they are unlikely to see the country achieve herd immunity before the end of 2021, making a surge in retail sales towards the end of the year improbable,” said Fitch Solutions.
Fitch Solutions explained that the retail sales growth projection of 5.5% is in line with its overall views on Malaysia’s economic recovery which is expected to be slow given the constant state of lockdown for nearly two years.
In terms of inflation, it believes that rising consumer price inflation, which has the potential to erode purchasing power, is a key risk to consumer spending in the second half of 2021.
Malaysia’s CPI has been steadily rising, peaking at 4.7 percent and 4.4 percent y-o-y in April and May 2021, respectively.
“However, while this has been trending upwards, our Country Risk team still believes that inflation will remain modest over the year, as a result of economic disruption,” said the research unit which forecasts inflation to average 1.3% and 1.9% y-o-y over 2021 and 2022 respectively.
