Malaysia’s household spending to grow in 2021, says Fitch Solutions

The projected improvement is assisted by the govt stimulus measures to support the economy

by FARA AISYAH / pic by MUHD AMIN NAHARUL

FITCH Solutions Group Ltd forecasts Malaysia’s household spending to return to growth in 2021, after the Covid-19 pandemic led to a contraction in consumer spending in 2020.

The rating agency said the projected improvement is assisted by the government stimulus measures to support the economy.

“We forecast real growth in household spending to bounce back over the year, growing by a real rate of 9.2% year-on-year (YoY).

“This is a significant improvement from the -1.6% YoY contraction we projected for household spending during 2020 and an improvement on the 7.7% YoY growth we estimate from a pre-Covid-19 environment in 2019,” it said in a recent statement.

Fitch Solutions expects all of the main consumer spending categories will return to positive growth in 2021.

It said food and non-alcoholic drink spending were prioritised in household budgets in 2020, and so growth in spending on these items, while remaining positive, will be slightly lower next year.

It forecasts food and non-alcoholic drinks spending to grow by 8.7% YoY in 2021, from the 10.1% YoY growth predicted for 2020.

The rating agency added that spending within other consumer categories is estimated to record significant contractions over 2020, as households cut spending on non-essential items.

As such, these categories will grow from a relatively lower base over 2021, and thus will report stronger growth over the year.

“The dynamics behind our improving forecast outlook for consumer spending in Malaysia in 2021 are in line with our country risk team’s forecasts that the Malaysian economy will grow by a real rate of 6.3% YoY over 2021, a recovery on the -4.6% contraction over 2020.

“This will help reduce the unemployment rate in the country, which rose to 5% of the labour force as a result of the economic impact of Covid-19,” Fitch Solutions said.

Fitch Solutions expects unemployment to fall to 4% of the labour force by the end of 2021 and this will support household incomes over the year.

The rating agency noted that there is a risk of increased underemployment.

It said people returning to work, but working fewer hours than pre-Covid-19, or taking lower paying jobs will put downside pressure on disposable incomes.

It added that inflation remains a risk for consumer spending over 2021.

“Lack of demand pushed prices down over 2020, where inflation averaged -0.5% over the year.

“With the recovery forecast for 2021, demand-side pressure will push up prices over 2021 to an average of 2.3% over the year,” it said.