BMI holds a cautious but positive outlook for consumer spending in Malaysia over 2025, as the economic recovery feeds through to strong real consumer spending growth over the full year.
“Household spending growth will be slower, relatively to 2024, although we note that this growth remains robust as economic growth persists and consumption levels normalise,” said BMI in a recent report.
They forecast household spending to grow by 5.0% year-on-year ( y-o-y) over 2025, in real terms, to a value of MYR952.6bil (at 2010 prices).
Household spending over 2025 will mark the return to pre-Covid levels of growth. Note that household spending grew at a real average rate of 5.2% y-o-y during the 2015-2019 period.
Spending will be constrained by an environment of high debt levels, and its servicing costs.
However, easing inflation and a tight labour market will support spending, as real wage growth returns to positive territory, supporting purchasing power over the year.
High-Frequency Data: Consumer Indicators Remain Stable
Consumer confidence levels have largely been declining, reflecting a weakening consumer mindset as inflationary pressures in certain commodities such as food and fuel continue to weigh on low- and mid-income households.
Latest data suggest that consumer confidence in quarter one (Q1) 2024 averaged at 87.1, a decrease from the 89.4 in Q4 2023.
“We note that this is still one of the lowest consumer confidence figures in Malaysia since Q2 2022, when it reached 85.9, with the average consumer confidence in the country between 2005 and 2023 averaging 96.5,” said BMI.
The latest retail sales data shows a more stable picture. In August 2024, retail sales came in at 5.9% y-o-y.
Although this is the slowest growth in retail sales since April 2024, this growth is due to easing sales in specialised stores.
Nevertheless, the August 2024 figure is the fourth consecutive month of retail sales slowdown, the trajectory of this weakening will require further monitoring.
“We will continue to watch both parameters closely and adjust our forecast accordingly,” said BMI.
Insights Into Consumer Spending
“Our forecast for year-on-year growth in consumer spending in Malaysia over 2025 is in line with our Country Risk team’s forecast that the economy will grow by a real rate of 4.6% y-o-y over the year,” said BMI.
Real private final consumption, as a percentage of gross domestic product (GDP) has been rising, from 57.9% of total GDP in 2021 to 58.8% of total GDP in 2025.
The fading of base effects and pent-up demand, tighter credit conditions and a weakening global growth outlook will pose significant growth headwinds, driving this slowdown in growth.
However, compared to other markets, Malaysia will still post solid growth. The recovery of the tourism sector will also provide some offset.
“Over 2025, we forecast the Malaysian ringgit to strengthen against the US dollar at MYR4.4/USD from 2024 to MYR3.8/USD in 2025,” said BMI.
Malaysia remains heavily reliant on imports to meet local demand and the strengthening of the exchange rate will mean that Malaysian consumers will benefit from cheaper imports.
“We believe that this backdrop will result in consumer spending over 2025 remaining stable,” said BMI. – Oct 18, 2024
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