Consumer spending to slowly normalise post-MCO

Consumer spending

PETALING JAYA: The consumer sector is bearing the brunt of the movement control order (MCO) in Malaysia, which is now entering the third week as the nation battles against the coronavirus (Covid-19) pandemic.

Consumer spending has halved throughout the period, resulting in most categories recording steep declines, except for food and beverage (F&B), communications and education.

A survey by the Department of Statistics Malaysia (DOSM) found that the average monthly household expenditure has fallen 55% from RM6,317 to RM2,813 while total household expenditure, excluding non-consumption expenses such as loan repayments, savings, income tax deductions, contributions to the Employees Provident Fund and Social Security Organisation (Socso), dropped 48% from RM4,033 to RM2,110.

Clothing and footwear took the heaviest beating in consumption expenditure with a 95% decline, followed by transport at 89% and restaurants and hotels at 86%.

The only gainer was food and non-alcoholic beverages at 27% while communication and education remain unchanged.

Alcoholic beverages and tobacco also saw a steep decline of 64%.

While things would definitely normalise post-MCO, experts believe it would happen gradually as the public would still be practicing precautionary measures.

Socio-Economic Research Centre (SERC) executive director Lee Heng Guie(pic below) said a release in pent-up demand was expected to be gradually restored as consumers’ sentiment have improved amid some expectations in behavioural protocols.

“Even if the MCO is lifted, the continued practices of safe distancing and gatherings are likely to be in place for a longer while.

“Hence, discretionary consumer spending will be somewhat restrained. Another concern is that some households may save and restrain spending more for a while until they feel secure with their jobs and income, ” he said.

In the case of tourism related spending, Lee said the recovery may take longer until the virus outbreak is contained worldwide.

He added that measures under the government’s Prihatin economic stimulus package were expected to cushion a sharp cut back in consumer spending amidst expectations of higher retrenchment and unemployment rates this year. SERC expected private consumption to grow at a slower rate of 2.5% this year compared with 7.6% last year.

CGS-CIMB Research the cumulative stimulus measures of RM260bil will only partially offset the drag on private consumption in the near term but will protect household balance sheets to enable a quicker recovery after the Covid-19 restrictions abate.

“Household expenditure is likely to fall significantly as long as the MCO remains in place.

“Besides, anecdotal evidence from China, which has emerged from the lockdown suggested that normalisation of consumer behaviour may be gradual as precautionary social distancing practices continue, underscoring our concerns surrounding the outlook of Malaysia’s private consumption, which makes up 59% of the gross domestic product (GDP), ” it said.

DOSM’s survey also found that the cutbacks in spending were more severe among households in the higher income segments.

The T20 category recorded a 59% reduction in spending, followed by the M40 and B40 categories at 48% and 41% respectively.

Assuming that all households opt for the six-month moratorium, the decline in household spending would be 63% for T20 and 54% and 49% for M40 and B40 respectively.

AmBank Group chief economist Anthony Dass(pic below) said the T20 segment had different priorities for expenditure and tended to focus more on discretionary spending.

He added that even as the economic impact of the MCO has yet to be tallied, it would be significant given its high contribution to the GDP.

“Consumers are more likely to be risk-averse and will not resume their spending, particularly for bigger ticket items like cars and appliances.

“Fears over job security to declining retirement savings have put consumers into retreat.

“As it stands, even if the MCO were relaxed partially or lifted, the social distancing and fear of health will take some time to renew confidence. Once confidence comes into play, we can expect a build up in pent -up demand, ” he said.

Maybank IB Research said DOSM’s findings suggested that the most likely source of pent-up or revenge spending post-MCO would be the T20 households.

Meanwhile, CGS-CIMB in another report, retained its neutral call on the consumer sector, maintained its neutral call on the consumer sector.

It believed the resilience of consumer staple stocks has already been priced in but the depressed valuations of consumer discretionary stocks could persist in the near to medium term on the back of earnings risk due to weak consumer sentiment.

Its top picks are DKSH Holdings (Malaysia) Bhd, Power Root Bhd and CCK Consolidated Holdings Bhd.

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