Kenanga Research projects a 6.2% growth in private consumption in 2024, versus an estimated 4.8% in 2023.
PETALING JAYA: Sustained high inflation, coupled with expected hikes in utility tariffs as well as the impending subsidy rationalisation may result in subdued consumer spending in 2024.
Kenanga Research said middle-income earners could be most affected, while the lower-income group may be less affected thanks to recurring cash handouts and various subsidies from the government.
“We project a 6.2% growth in private consumption in 2024, versus an estimated 4.8% in 2023.
“This is fairly consistent in terms of trend with the 2024 retail sales growth projection by Retail Group Malaysia (RGM) of 3.5% in 2024, versus an estimated 2.8% in 2023.
“However, we are not ready to interpret these numbers as suggesting that 2024 will be a strong year in terms of consumer consumption,” the research firm said in a report.
According to Kenanga Research, the 2023 private consumption number is not a good comparison as consumers were still cautiously adjusting to the reopening of the economy during early this year.
“At 6.2%, our projected 2024 private consumption growth rate still pales in comparison to the 7.7% recorded in 2019 prior to the pandemic.
“We believe the higher 2024 retail sales number will be driven by higher prices rather than stronger sales volumes,” it added.
Kenanga Research said consumers had already been hit by rationalisation in subsidies for eggs, rice and electricity.
“They are bracing for the imminent water tariff revision, an increase in the sales and service tax from 6% to 8%, and the removal of subsidy for RON95 petrol.
“While we believe the high-income group may not feel the pinch, middle-income earners could bear the full brunt.
“Ironically, the lower-income group may be less affected thanks to recurring cash handouts from the government while they also continue to enjoy various subsidies.”
The targeted petrol subsidy is slated to be rolled out in the second half of 2024.
The execution of this involved a subsidy card system aligned with the introduction of the Padu central database system in January.
“The subsidy distribution will be based on individual net disposable income, household income via social protection schemes, or a combination of individual and household earnings.
“This targeted subsidy approach may lead to a portion of the middle-income group losing access to these subsidies, which could reduce their spending power and affect mid-market retailers,” the research house said.
On a brighter note, it said the stabilisation of selected commodity prices, ringgit and freight costs could alleviate pressures, paving the way for margin recovery for certain consumer companies.
“We maintain our ‘neutral’ call. We favour consumer staple players. Our sector top picks are Fraser & Neave Holdings Bhd
, MR DIY Group (M) Bhd and QL Resources Bhd.”
