BMI, a Fitch Solutions company, has released its outlook for consumer spending in Malaysia for the year 2024, expressing cautious optimism as the country’s economic recovery continues to strengthen.
According to BMI’s report, household spending growth is expected to be more positive compared to 2023, driven by persistent economic growth and normalization of consumption levels. The firm forecasts a 5% year-on-year growth in real household spending, reaching RM903.8 billion at 2010 prices, marking a return to pre-Covid levels of growth.
Despite concerns about high debt levels and servicing costs, BMI highlights factors supporting spending, including easing inflation and a tight labor market leading to positive real wage growth. These factors are expected to bolster purchasing power throughout the year.
However, BMI noted a decline in consumer confidence levels, reflecting a weakened consumer mindset due to inflationary pressures, particularly affecting low- and mid-income households. Although there has been a slight increase in consumer confidence in the fourth quarter of 2023 compared to the previous quarter, it remains relatively low compared to historical averages.
Furthermore, retail sales data showed a slowdown since June 2022, although there was a modest increase in February 2024, reaching a five-month high. BMI attributed this to fading growth boosts from base effects and pent-up demand from the lifting of Covid-related restrictions.
One of the main risks to BMI’s consumer outlook is the high level of household debt, which impacts future borrowing capacity and current disposable income levels. Rapid increases in interest rates could further strain household finances, as seen in the household credit boom witnessed in Malaysia in recent years.
As interest rates rise, so will debt servicing costs, potentially squeezing disposable income and dampening consumer spending. The Bank Negara Malaysia estimates household debt at 68.5% of GDP in the third quarter of 2023, highlighting the need for cautious monitoring of debt levels and their impact on domestic demand.
Overall, while BMI maintained a positive outlook for consumer spending in Malaysia for 2024, it emphasised the importance of monitoring economic indicators and household debt levels to ensure sustained growth and stability.
