PETALING JAYA: While Malaysia’s private consumption may lose some steam this year, it will remain strong and largely unaffected by the broader economic slowdown, according to Fitch Solutions.
The research house forecast real private consumption growth to slow in 2019 as consumption declined from its high base in 2018.
This came after consumers front-loaded their purchases over the three-month long tax holiday between June and September 2018.
Fitch Solutions maintained its view that private consumption growth would see a sharp correction in the fourth quarter of 2018, with the effects continuing to be felt in the first and second quarter of this year.
Thus, it forecast that real private consumption growth in Malaysia would come in at 5.5% this year, down from the 6.7% in 2018.
“Private consumption will be largely exempt from headwinds to Malaysia’s economic growth, supported by a large, one-time repayment of tax refunds in 2019. Private consumption will also be buoyed by the tight labour market and low levels of inflation,” it said.
The research house expected inflation to remain subdued this year, averaging at 1.4%, up slightly from 1.0% in 2018.
It noted that recent readings show that inflation picked up by 0.2% in November 2018, down from 0.6% the month before.
On the labour market, it expected unemployment to remain stable over the medium-term, with rates hovering around the 3.1% level – a low range by global standards.
“The low level of unemployment in Malaysia will lead to greater stability in household spending compared with that of its peers in the region, such as Indonesia and the Philippines which have unemployment levels of 6% and 7%, respectively,” it said.
Low unemployment would also lead to the tightening of the labour market which would support the country’s wage growth.
It noted that the Pakatan Harapan government announced that it would increase minimum wages gradually over the next few years, lending further support to private consumption and consumer spending.
The government’s decision to pay out RM37bil worth of tax refunds, it said, would boost disposable incomes and support private consumption in 2019 despite the “watering down of fuel subsidies and the Bantuan Sara Hidup cash handouts”.
The research house noted that the implementation of populist policies had resulted in consumer confidence showing a clear spike, with the latest data from the Malaysian Institute of Economic Research showing the Consumer Sentiment Index touching 132.9 in the second quarter of 2018, higher than the 80.7 recorded in the same corresponding quarter in 2017.
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