COMING out of a bleak 2020, the Malaysian consumer sector is again facing the prospects of a strict lockdown and movement restrictions over 1H 2021. In an effort to curtail the spread of COVID-19, the Malaysian authorities have barred non-essential retail from opening while also limiting the movement of consumers to just essential shopping.
In addition, restrictions on high-risk environments like shopping malls and crowded stores will likely be some of the last restrictions to be lifted. This will have a disproportionate impact on the retail sector in the country.
Despite still holding a positive outlook for the Malaysian consumer sector, several recent events have led Fitch Solutions Country Risk & Industry Research to revise downward a number of its consumer spending forecasts for 2021.
“We have revised down our real household spending growth forecast for 2021 to 7.2% year-on-year (yoy) from the previous forecast of 11.0% yoy,” the research house pointed out in its report.
“While still positive, we do highlight this is partly caused by base effects. The estimated -5.0% yoy drop in 2020 real household creates a low yoy base for 2021 to grow from.”
In nominal terms, Fitch Solutions stated that the total household spending will be worth RM950 bil (US$234.8 bil) in 2021, slightly higher than the RM932.9 bil (US$225.3 bil) estimated for the pre-COVID-19 environment in 2019.
Retail sales in Malaysia have been down significantly over 2020 as both consumers and retailers were impacted by COVID-19 related restrictions. However, monthly retail sales data is showing signs of recovery, even posting positive growth in September 2020.
As Malaysia vaccinates its population and gradually eases restrictions over 2021, the research house believes retail sales will recover over the year with all retail sub-sectors (fashion, department stores or grocery) expected to rebound.
“We do note that continued restrictions on inter-district and inter-state travel within the Klang Valley (centred on Kuala Lumpur and includes its adjoining cities and towns in the state of Selangor), which accounts for approximately 60% of retail sales in the country, will delay this recovery,” commented Fitch Solutions.
While Malaysian households will face continued pressure on their purchasing power over 2021, the research house believes that there will be pent-up demand over the year, especially as consumer confidence rises with increases in vaccinations.
Once the macroeconomic situation improves and COVID-19 related restrictions are eased, shoppers will return to retail operations, including shopping malls as they have become places to socialise.
Additionally, Fitch Solutions only expect non-essential spending to ramp up over 3Q 2021 and 4Q 2021 as a large population gets vaccinated, restrictions are gradually lifted and consumer confidence improves.
However, over the year, it still forecast essentials such as food and non-alcoholic drinks and health spending to continue their outperformance.
“As such, we forecast spending on these items to grown by 9.8% yoy over 2021,” Fitch Solutions added. – Jan 20, 2021
