However, high household debt still poses a risk, says data provider BMI.
PETALING JAYA: Low inflation and a higher rate of employment are expected to boost consumer spending this year.
However BMI, a research unit of Fitch Solutions, said that while household spending will top the 2023 figure, household debt levels could impede increase in spending.
In its country risk and industry research report released today, BMI attributed the expected growth in consumer spending to Malaysia’s continued economic growth and normalisation of consumption levels.
It forecast household spending to grow by 5.1% year-on-year in 2024, to RM910 billion, marking the return of pre-pandemic growth levels where household spending grew at an average of 5.2% from 2015 to 2019.
However, it said the high level of household debt, equivalent to 67.5% of Malaysia’s gross domestic product (GDP), in the second quarter of 2023 was a risk to its outlook.
“It limits the future availability of debt but also draws on current disposable income levels, especially as debt servicing costs increase on the back of interest rate hikes,”BMI said.
“Central bank policy rates will not reach pre-2022 lows, meaning that consumers and households will need to adjust to higher interest rates for the foreseeable future.
“Malaysia has witnessed a household credit boom over the past few years. The rapid unwinding of this could pose a risk to domestic demand,” it added.
BMI said Malaysian households were relatively well insured against rising debt servicing costs, thanks to liquid financial assets.
While household debt totalled to RM1.5 trillion in 2022, household finance assets came up to RM3 trillion. “This highlights that households do have additional room to absorb rising debt costs if needed,” it said.
It said Malaysia’s inflation rate has been “relatively tame” compared to other countries, and expects it to remain manageable through the course of 2024.
Malaysia’s labour market has also strengthened with the end of the pandemic, serving as a major driver to the uptick in consumer spending in 2022 and 2023. It said this would be among the basis for a stable outlook on consumer spending.
With unemployment back to pre-pandemic levels of 3.3%, BMI forecast the rate to drop further to an average of 3.1% through the course of 2024.
“However, should economic conditions worsen in the market, there is a risk of elevated unemployment, which will quickly feed through into a weaker consumer outlook,” it said, citing an expected slowdown for major economies this year.
With that said, it believes that Malaysia will record solid growth in 2024 compared to other economies, thanks to the tourism sector’s recovery and with China reopening for travel.