PETALING JAYA: Slower wage growth, rising cost of living pressures, moderating household liquidity buffers and elevated debt levels are weighing on the sustainability of private consumption.
In its 2025 annual report, Bank Negara Malaysia (BNM) said wages, which made up 62.9% of household income in 2024, have grown only modestly over the past decade.
The central bank said structural factors such as insufficient creation of high skilled, high paying jobs, heavy reliance on low-cost foreign labour, and gaps in the broader labour market ecosystem led to the country’s subdued wage outcomes.
“Persistently weak wage growth has two potential implications for the sustainability of household spending.
“Firstly, under the permanent income and life-cycle hypotheses, spending decisions reflect both current earnings and expectations of future income. Slower wage growth signals weaker future earnings, causing prudent households to slow their consumption.
“Secondly, some households may treat the income weakness as temporary or face frictions in adjusting consumption.
“To maintain their spending, they may increasingly draw down on savings, increase borrowing, or make use of available policy support. However, prolonged reliance on non-income channels has its own sustainability risks,” it said.
Moreover, BNM said cost of living concerns have intensified following higher prices during the post-Covid pandemic reopening. Although inflation has stabilised since 2023, price levels remain elevated relative to the pre-Covid period.
“While aggregate wage per worker growth tracked headline inflation, it has not matched the sharper increases in food and beverage (F&B) prices.
“In the private sector, wage growth lagged behind both overall and F&B inflation. The pressure is more pronounced for lower-income households, for whom F&B spending constitutes a larger share of total expenditure,” it said.
Government support has played an important role in helping lower income groups cope with the cost of living pressure, yet BNM noted that fiscal space is limited and prudence requires careful prioritisation of government spending.
“Without effective exit mechanisms, prolonged household reliance on cash transfers increases exposure to shifts in fiscal priorities and could complicate fiscal consolidation and retargeting efforts.
“These challenges are likely to intensify over the longer term as population ageing raises structural demands on healthcare and social protection,” it said, adding that the country’s household debt-to-gross domestic product ratio remains high by regional standards.
Key policy imperatives such as raising household incomes, maintaining price stability through low and stable inflation, and harnessing the second demographic dividend are crucial to support the sustainability of private consumption growth.
The central bank said strategies such as the National Industrial Masterplan, National Semiconductor Strategy and the National Investment Aspirations aim to attract quality investments and shift Malaysian firms towards more complex, high-value activities that generate more high-skilled job opportunities.
“To support broader, more durable income growth, Malaysia will need to further develop its wage-setting institutions beyond the minimum wage,” it said.
