KUALA LUMPUR (July 16): BMI, a Fitch Solutions company, is holding a positive outlook for consumer spending in Malaysia over 2024 and 2025, as the ongoing economic recovery feeds through to stable real consumer spending growth over the year.

In a statement on Monday, the firm said easing inflationary pressures and a stable labour market will form the base for stable consumer spending.

It said while consumer confidence remains sluggish, strong showings in recent retail sales data indicate an improving consumer outlook in Malaysia.

BMI said the key risk to the outlook over 2024 remains high debt levels of households, amid an elevated interest rate environment.

It said this will require consumers to allocate more of their budgets to debt repayments, which will constrain their ability to spend on other goods and services.

Consumer spending outlook for 2024 and 2025

BMI said household spending growth will be more positive, relatively to 2023, as economic growth persists and consumption levels normalise.

The firm forecast household spending to grow by 5% year-on-year (y-o-y) over 2024, in real terms, to a value of RM904.6 billion (at 2010 prices).

It said household spending over 2024 will mark the return to pre-Covid levels of growth. Household spending grew at a real average rate of 5.2% y-o-y during the 2015-2019 period.

It said that over 2025, household spending will hold steady, growing 4.8% y-o-y, in real terms, to a value of RM948 billion (at 2010 prices).

Spending will be constrained by an environment of high debt levels, and the servicing costs. However, easing inflation and a tight labour market will support spending, as real wage growth returns to positive territory, supporting purchasing power over the year.

Consumer confidence

BMI said consumer confidence levels have largely been declining, reflecting a weakening consumer mindset, as inflationary pressures in certain commodities such as food and fuel continue to weigh on low- and mid-income households.

The firm said the latest data suggested that consumer confidence in the first quarter of 2024 (1Q2024) averaged at 87.1, a decrease from the 89.4 in 4Q2023.

“We note that this is still one of the lowest consumer confidence figures in Malaysia since 2Q2022, when it reached 85.9, with the average consumer confidence in the country between 2005 and 2023 averaging 96.5.

“The latest retail sales data have been faring slightly better. In May 2024 (the latest data available), retail sales came in at 8.7% y-o-y, the strongest growth in retail sales since April 2023.

“The strong growth was due to higher sales in non-specialised stores and other household equipment in specialised stores,” it said.

Nevertheless, BMI said that while the May 2024 figures have proven optimistic, the longevity of this recovery will require further monitoring.

“We will continue to watch both parameters closely, and adjust our forecasts accordingly,” said BMI.

It said its forecast for y-o-y growth in consumer spending in Malaysia over 2024 is in line with the firm’s country risk team's forecast that the economy will grow by a real rate of 4.4% y-o-y over the year.

It said real private final consumption, as a percentage of gross domestic product (GDP), has been rising, from 57.9% of total GDP in 2021 to 58.6% of total GDP in 2024.

The firm said the fading of base effects and pent-up demand, tighter credit conditions and a weakening global growth outlook will pose significant growth headwinds, driving this slowdown in growth.

BMI however said that compared to other markets, Malaysia will still post solid growth.

It said the recovery of the tourism sector, especially as mainland China reopens for travel, should provide some offset.

Ringgit

Over 2024, BMI forecast the ringgit to remain stable at 4.6 against the US dollar from 2023 to 2024.

“Malaysia remains heavily reliant on imports to meet local demand, and the stability of the exchange rate means that while it will not benefit from cheaper imports, consumer spending growth will not be hindered by a weakening exchange rate.

“We believe that this backdrop will result in consumer spending over 2024 remaining stable,” it said.