The effects of global economic uncertainties on consumption

PETALING JAYA: Prevailing uncertainties, in light of global economic headwinds, may have an impact on private consumption trends in the near term.

Centre for Market Education chief executive Carmelo Ferlito noted that private consumption remains one of the key drivers of Malaysia’s gross domestic product.

“The international climate of uncertainty may drive consumers toward a more conservative approach, driving down expenditure for things such as outside food and travels,” he told StarBiz.

Carmelo added that the behaviour of the currency would be another important factor to monitor.

“The main driver is sentiment and how consumers will eventually feel, especially by factors such as the depreciating ringgit.”

Private consumption growth accelerated slightly to 4.6% year-on-year in the third quarter of this year.

MIDF Research in a recent report noted that growth was spurred by consumers’ increased spending on, among others, food and beverage, transport as well as restaurants and hotels.

“This is backed by increased employment, positive income growth as well as easing inflation, which slowed to 2% year-on-year in the third quarter of 2023.”

Going forward, MIDF Research said it expects headline inflation to average at 2.7% for 2023.

“As at October 2023, average food inflation was at up 5.3% year-on-year, equivalent to previous year’s up 5.7%.

“The moderation of food inflation rate was faster than our expectations, hence we foresee overall price growth to average at up 2.7% for this year.”

According to the research house, non-food inflation is expected to average at above 1.5%.

“Looking ahead, we view Malaysia’s inflation outlook to stay on the upside, despite moderating food inflation pressure and stabilising global commodity prices.

“The changes of price control mechanisms will determine the speed of inflation for 2024 onwards.”

Headline inflation rate stood at up 1.8% year-on-year in October 2023, the lowest since March 2021.

MIDF Research noted that the inflation rate was below market consensus of above 1.9% year-on-year.

“Non-food inflation rate maintained at above 0.9% year-on-year, while food inflation rate moderated to almost a two-year low at above 3.6% year-on-year.

“The softening inflationary pressure, among others, was due to a high-base effect and normalisation of global commodity prices,” it said.

In light of prevailing economic challenges, AmBank Economic Research in a recent report said it is maintaining its view that the economy will grow by 4% in 2023 and 4.5% in 2024, with the expectations of continued resiliency in domestic demand.“Measures announced in Budget 2024, which we see as consumption-friendly, will provide a boost,” it said.

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