OVERVIEW

The Consumer Sentiment Index (CSI) surged past the 100-neutral level in 1Q22, its best since 3Q18, thanks to sentiment that was lifted by improving income and job prospects. CSI gained by 11.7-points to end the quarter at 108.9 points, a convincing turnaround against 4Q21’s reading of 97.2, and the 98.9 registered a year ago (1Q21). The steady drop in unemployment level (February 2022: 4.1%; 4Q21: 4.2%; May 2020: 5.3%) and bright employment prospects (1mn job creation in 2022; GliCs and GLCs initiative; SOCSO ‘Jamin Kerja’) emerged as one of the driving factors that lifted sentiment. Sentiment was also aided by massive counter-cyclical measures to lift income including specific initiatives (Bantuan Keluarga Malaysia – BKM), special initiatives (Sales and Service Tax exemption for purchase of new vehicles) apart from unprecedented withdrawals from the Employees Provident Fund (EPF). This was further added by fiscal efforts to keep the cost of living manageable particularly a cap in petrol prices (RON95 petrol; Diesel). Sentiment was also soothed by a much-improved COVID-19 conditions, the reopening of international borders in 2Q and the government’s massive Development Expenditure (DE) for 2021 and 2022 respectively.

Sentiment should improve further, consistent with full economic openings beginning May where all businesses are allowed to operate at 100%-capacity. This will be further supported by the government’s commitment to undertake targeted lockdown measures (note: circuit breakers), a precursor for minimal interruption in social and economic activities. Rapid job creation in 2022 following various private-public initiatives will be another factor that could lift sentiment. Overall sentiment will also be pushed by encouraging growth prospects following a sharp economic turnaround in 2022 where output will finally exceed the pre-crisis levels (PIVB: +6.1% YoY).

It was a contrast for the Business Condition Index (BCI) however, reflected by the 21-point drop in 1Q22 to end at 101 points. Sentiment was dented by the still challenging COVID-19 condition following elevated number of daily cases. Other dampeners include persistent labour shortage issues (e.g., restriction in foreign labour in-take) and uncertainty (then) on when the international border will be reopened. Sentiment was also weighed by persistent supply chain disruptions, raw material shortages and an increase in cost input which hampered output to some extent.

This is expected to improve from 2Q onwards consistent with our move into the endemic stage beginning April. This will also be driven by further improvement in external conditions especially in ASEAN and major economies, a precursor for a full turnaround in trade. This may be capped however by headwinds coming from China following growth slowdown in 2022 (4.4%; 2021: 8.1%). China’s strict COVID-19 lockdown policies may also bite, not to mention the prolonged uncertainty arising from Russia-Ukraine conflict.

Outlook. Our nation’s transition into the endemic stage will be the catalyst that will push the composite index higher. The full reopening of the economy as well as our international borders suggest that Malaysia can finally resume growth to pre-pandemic levels. Barring unforeseen circumstances like the sharp rise in COVID-19 infection or emergence of unexpected tailwind risks, we expect to see higher index levels, for both consumer sentiment and business conditions, in the coming quarters.

Source: PublicInvest Research - 12 May 2022