KUALA LUMPUR, Jan 12 ― Consumer spending in Malaysia is likely to post solid growth over 2022, after two years of Covid-19 related economic slowdowns, Fitch Solutions Country Risk & Industry Research said today.
The market research company, a subsidiary of the Fitch Group, said there are signs that the Covid-19 situation is improving, but noted that both retail sales and consumer confidence indices have so far struggled to reach pre-pandemic levels.
It also cautioned that higher inflation and the possibility of new Covid-19 variants pose a risk to consumer spending over 2022, and could lead to the reimposition of Covid-related restrictions.
“Consumer spending in Malaysia will post good growth over 2022, with real household spending to grow 5.1 per cent year-on-year (y-o-y).
“This is a notable improvement from the 0.5 per cent growth estimated for 2021, as impacts from Covid-19 continued to weigh on domestic demand,” it said.
Fitch Solutions said that consumer spending recovery this year would be part of the wider economy recovery, with growth mainly driven by private consumption and fixed investment.
It foresees real household spending growing 1.8 per cent more than pre-pandemic levels in 2019.
Fitch Solutions said that in 2021, retail sales grew 4.3 per cent, but added that this was overstated by the low base effect created in 2020 ― between January and September ― due to a 5.3 per cent shrinkage in the sector.
“This high frequency data suggests that retail sales in Malaysia have still not recovered to pre-Covid-19 levels. Comparing retail sales in 2021 to that of 2019 (for the period January to September), sales remain 1.2 per cent.
“Malaysian authorities have continued to implement stringent restrictions over 2021, largely in sync with rising Covid-19 cases,” it said.
It added that higher vaccination rates are needed for these two to be decoupled and allow for a broader recovery in retail sales from 2022 onwards.
On the unemployment rate, it said that this will begin to soften over 2022, dropping an average 3.9 per cent of the labour force over the year, from 4.7 per cent in 2021.
It said the largest threat to the economy comes from a rapid unwind of the household credit boom that has taken place over the past decade since the global financial crisis.
“This has the potential to result in a collapse in domestic demand amid declining property prices.
“This is not our core view, but risks are rising with the severe economic disruptions brought on by the Covid-19 pandemic,” it said.
It said that the rising consumer price inflation is a key risk to consumer spending in 2022, as it has the power to potentially erode purchasing power, with Malaysia’s inflation rate ticking upwards, going from -0.25 per cent y-o-y in January 2021, forecast to end the year at 3.0 per cent y-o-y.
It added that the units Country Risk team also foresees Bank Negara Malaysia (BNM) raising rates over 2022, to 2.25 per cent by end of the year.
Household debt nominal figures remain significantly high, said the Fitch Unit, with BNM putting it at 74.4 per cent of the gross domestic product (GDP), slightly down from 76.4 per cent in 2020.
“Similarly, as repo rates and interest rates begin to rise, so too will debt servicing costs. This would mean households will increasingly have to allocate disposable income towards debt financing, placing downward pressure on consumer spending going forward,” it said.
It said that with economies reopening, consumers are now demanding products they had little access to over the past year due to Covid-19 restrictions ― with supply chain issues and bottlenecks resulting in consumer goods shortages which feeds through into supply-side inflation.
“Fitch Solutions believes the global semiconductor shortage will continue into 2022, putting pressure on the supply of several consumer goods. New, more transmissible variants can cause the closure of factory production or manufacturing across the world/
“This becomes a problem when one aspect of the supply chain opens up and another one is impacted by restrictions, especially in the East Asia region,” it said, adding that manufacturers are already facing shortages of key components and higher raw materials cost.
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