Malaysia consumer spending seen recovering

Slight increase: Spending by local cardholders increased moderately by 4.4 y-o-y in January 2017, compared to the 3.3 growth in December 2016.

PETALING JAYA: Consumer spending is expected to gradually recover in the second half of this year.

Affin Hwang Capital Research was optimistic that while consumer spending would take longer to recover, macroeconomic indicators such as private consumption and the ringgit’s performance show encouraging upside potential this year.

“In 2016, the consumer sector’s net profit was down 16% year-on-year (y-o-y) due to weak consumer sentiment which affected volumes and higher raw materials as well as operating expenditure.

“We concur that it remains a challenging year and consumer sentiment will remain flat in the first half but may recover slowly from its low base as several macroeconomic indicators, such as a resilient private consumption, point towards a better second half of 2017,” said Affin Hwang in its note.

The Malaysian Institute of Economic Research’s Consumer Sentiment Index (CSI) showed that the domestic consumer sentiment in the fourth quarter of 2016 fell by 3.8 points to 69.8 on a quarter-on-quarter (q-o-q) basis. However, the CSI indicated a slight pickup from an all-time low of 63.8 in the fourth quarter of 2015 since the global financial crisis.

The subdued consumer sentiment was also captured in the Nielsen Consumer Sentiment Index, in which a decrease of five points q-o-q to 84 was registered in the fourth quarter of 2016.

“With such low confidence level, we cannot expect consumer spending levels to move positively for the next six months. As such, I believe that consumer spending will remain flat at best,” said Nielsen Malaysia country manager Richard Hall, while adding that Malaysian consumers were among the least confident in Asia-Pacific.

Maybank IB Research said data on purchases using credit cards indicated that local consumers were spending cautiously despite the rebound in tourist arrivals.

“Credit card spending in the economy rose 5.3% y-o-y in January 2017, driven by the seventh consecutive month of double-digit increases in spending by cardholders which grew 17.2% y-o-y in the same period.

“Spending by local cardholders increased moderately by 4.4% y-o-y in January 2017, compared to the 3.3% growth in December 2016,” said the research house.

Maybank IB Research anticipated consumer spending to continue growing. It expected real private consumption expenditure to grow by 5.9% in 2017, primarily driven by recoveries in tourist arrivals and motor vehicle sales.

“However, the main risk on consumer spending is the impact of inflation which jumped to 3.2% y-o-y in January 2017 from the average of 1.5% y-o-y in June-December 2016,” said the research house.