PETALING JAYA: Private consumption is projected to expand by 5.1% year-on-year in 2026, a modest pace that underscores the need for deeper structural reforms even as headline economic growth remains resilient, says CGS International (CGSI) Research.
The 2026 forecast compared with 5.2% in 2025 and lagged well behind the 7.1% average recorded between 2016 and 2019.
According to the research house, addressing the weakness in household spending will require sustained policy coordination beyond near-term stimulus.
“Recent upside surprises to Malaysia’s gross domestic product (GDP) numbers hide a grim reality – that the growth in private consumption is still surprisingly dismal,” CGSI Research said.
The country’s GDP grew 5.2% last year after expanding 5.1% in 2024.
Even after four years of post-pandemic recovery, relative consumption growth has slowed markedly compared with pre-pandemic trends.
“This was despite wages broadly outpacing inflation, a shift in income distribution towards lower-income groups, and limited evidence that demographic ageing is dragging on demand,” it noted.
Meanwhile, another analyst argued that structural concerns about wages and purchasing power are valid, but they underestimate the lagged effects of fiscal support, civil service pay revisions and private sector adjustments.
“As these filter through more fully, consumption could surprise on the upside, particularly if the ringgit strengthens and labour market tightness intensifies,” the analyst with a banking group told StarBiz.
CGSI Research pointed out that its studies show that the true cost of living pressures faced by households could be masked by limitations in conventional inflation and wage measures.
It added that purchasing power has yet to recover fully from the compounded shocks of Covid-19, weak wage growth, high consumer inflation, and fiscal tightening, while underemployment remains elevated and labour’s share of national wealth has declined.
“We observe a broad pullback in spending across major product categories, with the deepest cuts concentrated in non-essential items,” CGSI Research said, pointing to stagnant insurance demand amid rising premiums and policy-related weakness in alcohol and tobacco.
Tourist arrivals have provided some offset, lifting transport as well as restaurants and hotels. While retail spending rose in the fourth quarter of 2025, CGSI Research described it as largely a one-off.
Wage momentum is building and the absence of major price reforms this year may allow earnings to catch up with inflation.
Policy measures – including civil service pay hikes, progressive wage initiatives and minimum wage increases – could also lend support.
Still, the firm cautioned that weak wages and soft consumption could remain an issue throughout 2026.
Public concerns have shifted towards tax compliance and e-invoicing, an affordable insurance plan will only materialise in 2027, and some uncompetitive sectors continue to suppress wage growth despite strong data centre investments.
“We think addressing the consumption issue requires a holistic approach,” CGSI said, highlighting structural labour market gaps such as reliance on low-skilled foreign labour that dampens bargaining power.
These are being targeted under the 13th Malaysia Plan (2026 to 2030).
It also argued Malaysia would benefit from a broader cost-of-living gauge distinct from the consumer price index to better calibrate policy support.
It expects Bank Negara Malaysia to keep the overnight policy rate unchanged at 2.75% in 2026.
