Skip to main content

The Star: Consumer spending robust

By June 21, 2022November 2nd, 2023No Comments

PETALING JAYA: Private consumption, the driver of the economy, is forecast to grow by 7% to 9% this year despite the risks of a high cost of living fuelled by inflationary pressure.

Although there are underlying risks which could hamper private consumption or consumer spending, economists expect the target to be met.

For 2021, private consumption grew by 1.9% and 5.5% year on year (y-o-y) in the first quarter (1Q22), recording the best reading since 2Q21. For 4Q21, it grew by 3.7% y-o-y.

Bank Islam (M) Bhd chief economist Mohd Afzanizam Abdul Rashid projected consumer spending to revert to its growth trend of 7% for this year.

He said this was premised on the reopening of the economy, as well as improvement in the labour market.

“The relaxation of human mobility is instrumental in driving growth this year. Cash transfer programmes, Employees Provident Fund withdrawal facilities and income growth will provide the right eco- system for consumers to spend more this year.

“The reopening of borders has helped steer the economy. Nonetheless, the disruption in the supply side such as the difficulty in pro- curing raw materials and labour could compromise the strength of the economic recovery.

“Therefore, it is important to identify the pressure points in order for the government to prescribe the right stabilisation policies,” he told StarBiz.

Afzanizam also said policies should be nimble due to the economy being fluid and evolving,

Due diligence has to be robust before enacting any reforms, he said, noting that it has to be done tactfully and that the right communication strategy is important to gain a buy-in from the public.

According to AmBank Group chief economist Anthony Dass, private consumption is expected to expand by 9% this year. He said household spending would primarily be supported by the recovery in income and employment.

The migration to endemicity with the reopening of borders would provide a lift to household spending.

Dass, who is also a member of the Economic Action Council Secretariat, said the rise in online spending since the onset of the pan- demic was expected to continue and spur private consumption.

“At the same time, we expect some pent-up demand for selected discretionary items that were previously restricted due to the imposition of containment measures.

“Amongst them are discretionary spending at restaurants, hotels and recreational activities.

“Continued targeted policy measures, particularly for the vulnerable households such as Bantuan Keluarga Malaysia and targeted loan repayment assistance, coupled with the country’s strong exports and the hike in the minimum wage to RM1,500 would spur consumption,” he said.

However, economists said there could be challenges which might dampen consumer spending.

Shankaran Nambiar, who is the head of research at the Malaysian Institute of Economic Research (MIER), said the biggest threat to consumption was inflationary pressure.

There appeared to be no certainty that global prices or “choke points” would be relaxed in the months to come, he said.

“Global tensions may not be completely resolved and China’s economy, to which Malaysia is bound, may not regain its bounce soon.

“More attention has to be directed at bringing down food prices and inflationary pressure.”

He suggested the introduction of a four or 4½-day-week for employment.

“Practical mechanisms will have to be introduced. With more time on their hands, people may be induced to spend more.”

“Social safety nets like unemployment insurance have to be introduced so that people can spend more freely.”

Dass said the rising cost of living could dent the spending power of households, especially the lower and the middle-income group, adding that it could also cause those in the high-income group to postpone some of their spending.

To support private consumption, Dass said targeted subsidies were welcomed.

The focus should be on addressing the issue of foreign workers, talent shortage and food security to sustain private consumption.

“We envisage that the domestic economy will grow by 5.6% for the full year, while private consumption should expand healthily by 8.5% on an annual rate, which will bring the private consumption over the gross domestic product this year to be around 59% to 60%,” Dass said.

Meanwhile, UOB’s Global Economics and Markets Research unit said there are potential headwinds that could moderate private consumption growth in Malaysia to around 6.5% in the second half of 2022 and 2023.

However, it said the headwinds could be countered through wider job opportunities, higher incomes and direct cash subsidies to the consumers.

Among the headwinds are higher global uncertainties, rebalancing of household expenditure amid weaker household balance sheets and the expiry of pandemic policy measures.

Additionally, higher cost of living and interest rates could also restrain private consumption.