• Both CSI and BCI Rebounded Though Remained Below Neutral Level 
   
• BCI Signals a Resurgence in Confidence Among Local Manufacturers
   
• Both sentiments signal recovery but caution persists due to external headwinds

Overview

During the last quarter of 2023, the Consumer Sentiments Index (CSI) demonstrated a positive trend, recovering from its lowest point in 3Q23. The 4Q23 registered at 89.4, marking a significant rise from the third quarter score of 78.9, which marked the lowest point observed in recent times. CSI experienced a recovery in 4Q23, aligning with a decrease in the unemployment rate (4Q23: 3.3%; 3Q23: 3.4%). Plus, inflation moderated to 1.6% in 4Q23 compared to the same quarter of the previous year (3Q23: 2.0%). The drop in 4Q23, compared to the same period in 2022 (3.9%), primarily due to the reduced average price of Unleaded petrol RON97, which dropped from RM3.84 to RM3.47 per litre. Sentiment was also boosted by better job market following the overall job count rose by 2.1%, reaching 8.94mn positions in 4Q23, up from 8.76mn jobs in the corresponding period of the previous year. Anticipated stability in the labour market for the next quarter is attributed to investments and growth across most industries.

Although consumer sentiment improved, caution persisted due to a challenging global economic outlook in the near term. Sentiment could be affected by the rollout of targeted fuel subsidies which may raise retail fuel prices, and the progressive wage model will impact the inflation rate in 2H24.

Business Conditions Index (BCI) suggested a rebound in confidence among local manufacturers. During 4Q23, BCI rose by 9.3 points compared to the previous quarter, reaching a total of 89 points. Annually, BCI also saw a 3.1- point increase from 85.9 points. Businesses persist in conveying optimism about the outlook for the upcoming three months, with notably high confidence evident, especially in the beverage and textile sectors. BCI was affected by several challenges and headwinds, including aggressive interest rate hikes by advanced economies (AEs), which exerted pressure on the Ringgit. Geopolitical tensions in the Red Sea and Suez Canal bottlenecks further dampened the situation, potentially intensifying global supply chain disruptions. Although the Malaysian manufacturing sector stayed subdued in 2023, we anticipate a gradual production recovery in 2024. This optimism is driven by improved sentiment and employment, which more than offset easing inflation. Around mid-2024, signs of a broader recovery in the manufacturing sector may become evident.

Near-term sentiment is likely to remain cautious due to ongoing headwinds that may take some time to alleviate. The implementation of the Subsidy Rationalization Initiative (SRI) could potentially harm businesses, adding financial pressure to firms. Despite the challenges, the outlook is anticipated to be bolstered by ongoing reforms, progress, and determination demonstrated by the Unity Government.

Outlook

Several headwinds may limit the increase in the composite index soon. These factors may encompass inflationary pressure, the volatility of the Ringgit, and a slowdown in global growth. The combination of higher food costs and increasing household expenditures is expected to slow down consumer spending. The introduction of new taxes this year will further worsen the negative effects on consumption habits. Nevertheless, efforts by the government, including steady reforms and initiatives to curb the rise in the cost of living and the cost of doing business, could potentially offset these challenges and enhance the CSI. This will also be aided by the expected recovery in manufacturing sector in 2H24 which could boost the BCI.

Source: BIMB Securities Research - 19 Feb 2024