Household spending in Malaysia to swing to 5.1pct real growth next year: Fitch Solutions

23-Oct-2021 Intellasia | TheSundaily | 5:02 AM Print This Post

Malaysia’s consumer spending is projected to see a recovery in 2022, with household spending forecast to grow by a real rate of 5.1 percent from a contraction estimated for 2021 as Covid-19 curbs continued to weigh on domestic demand, according to Fitch Solutions.

Total consumer spending fell 5.4 percent 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 growth mainly comes from a low base, it said, citing weakness from prolonged lockdown restrictions impacting consumers and retailers, especially in the Klang Valley which accounts for 60 percent of Malaysia retail sales.

“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.

It also identified high political risk at the start of H2’21 and risk of a worsening Covid-19 outbreak in the coming months as further downside risk to the forecast as it could affect both retail sales and consumer confidence.

Fitch Solutions explained that the retail sales growth projection of 5.5 percent 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. It noted the domestic demand outlook has weakened considerably, with consumer spending in 2021 likely to be worse than in 2020.

Furthermore, unemployment is likely to rise over H2’21, and has already started to climb, to 4.8 percent in June 2021 from 4.5 percent in May 2021 compared to a pre-pandemic average of 3.3 percent pre-pandemic.

Fitch Solutions pointed out an association of Malaysian businesses, Industries Unite had warned in early July 2021 of impending mass unemployment if lockdowns were to persist.

“The serious outbreak will also set back any plans to reopen to international travel, dashing any prospects of tourism and other related sectors beginning to recover in 2021.”

As for inflation, it believes that rising consumer price inflation is a key risk to consumer spending over the remainder of 2021, as it has the potential to erode purchasing power. Malaysia’s CPI has been ticking up, reaching a high of 4.7 percent and 4.4 percent year-on-year (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 and forecast inflation to average 1.3 percent and 1.9 percent y-o-y over 2021 and 2022 respectively.

It also observed supply chain issues and bottlenecks had resulted in consumer goods shortages, feeding through into supply-side inflation.

Fitch Solutions believes the global semiconductor shortage will continue into 2022, putting the pressure on the supply of several consumer goods. Noting that the Delta variant upending factory production in Asia, disrupting shipping and posing more shocks to the world economy.

Its global view for a notable recovery in consumer spending relies on the vaccination of a large enough portion of the population thus translating to a drop in Covid-19 infections and death rates, which will lead to a gradual lifting of restrictions, boosting consumer confidence and retails sales.

Fitch Solutions said Malaysia is unlikely to achieve herd immunity before the end of 2021, despite a recent surge in vaccination rate.

“Furthermore, we see risks that the vaccination drive could see a slowdown after the initial surge that began in June 2021, as the experience in other countries such as the US and Singapore suggests, due to a variety of factors including vaccine hesitancy.”


Category: Malaysia

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