PETALING JAYA: The persistence in geopolitical tensions, effects of sustained inflation on the global supply chain, and weaker-than-expected recovery in China continue to dampen business and consumer sentiment.
The Malaysian Institute of Economic Research (MIER) stated that the Consumer Sentiment Index (CSI) for the second quarter of 2023 (2Q23) decreased by 8.4 points quarter-on-quarter (q-o-q) to 90.8. The employment index also observed a similar trend, declining by 7.4 points q-o-q to 102.4 points in 2Q23.
With a total of 1,014 households interviewed, MIER’s quarterly report on consumer sentiment revealed that the respondents’ personal finances had worsened in 2Q23 due to the hike in the overnight policy rate in 2Q23 by Bank Negara, as well as elevated inflation levels that increased the cost of living.
“Only 20% of respondents felt their future finances will improve, rising 1% q-o-q, while 26% expect their future finances to worsen, increasing 5% q-o-q in 2Q23. This is a significant 17% drop from the same quarter a year ago.
“This indicates that despite the government’s initiatives to address cost-of-living issues such as the Menu Rahmah and Inisiatif Pendapatan Rakyat, it appears that most respondents are not convinced that these measures can address long-term inflation,” MIER said in a report.
MIER noted that the projected deceleration in global economic growth for 2023 led to growing pessimism surrounding future employment prospects among the respondents. There are only 27% of respondents who expect the job market to improve in 2Q23 (drop by 1% q-o-q).
“Although business activities have picked up, the persistence of geopolitical tensions and the looming threat of sustained inflation pose risks to the global supply chain. The reopening of China’s economy has also failed to impress observers,” it said.
MIER also found that 20% of respondents expect their incomes to rise in 2Q23 (up 1% q-o-q) and 87% of them perceived that inflation would continue to rise in the near future.
Hence, the respondents’ spending plans also appear to be lower with the proportion of respondents who plan to make a purchase decreasing q-o-q in all spending categories except for computers (7%).
“The lack of optimism over inflation is perhaps due to the wide expectation that the US Federal Reserve will resume its interest rate hike. This is due to the elevated level of inflation in the United States.
“In terms of spending plans, the lowest categories are refrigerators and cookers/ ovens at 5%, respectively, and the highest percentage is seen in houses and furniture at 9% each,” it said.
Meanwhile, the MIER’s Business Conditions Index (BCI) dropped 13 points to 82.4 points in 2Q23, the lowest level since 2Q20.
The survey on a whole suggests that with the BCI declining, sales and employment are also showing negative signs in 2Q23, indicating that firms feel the ongoing global uncertainties will continue to negatively impact their business in the near term.
“The survey results showed that domestic orders have dropped significantly, with the sub-index declining 9.8 points q-o-q in 2Q23 to 32.3 points. The number of firms which reported declining sales rose to 52% in the same period.
“Amid ongoing global uncertainties and elevated inflation, external demand in 2Q23 has returned to trend downwards. Export orders for the quarter declined 7.9 points to 35 points and the number of firms that reported a decline in export orders rose to 43% in 2Q23 from 33% in 1Q23,” MIER said.
Moreover, the industrial production index dropped 8.6 points q-o-q in 2Q23 to 39.2 points and 39% of firms indicated their inventory levels have increased, up 25% in 2Q23 from 14% in 1Q23.
“The ongoing global uncertainties, coupled with elevated inflation and supply chain disruption, has placed Malaysia in a vulnerable position.
“It is important that the country, as a small and open trading economy, figure out solutions to address these concerns,” MIER said.