Malaysia’s consumer outlook: Prolonged recovery into 2022

PITTED against surging COVID-19 cases – especially with the Delta variant on the prowl – and the re-implementation of stricter restrictions on movement and non-essential retail, a downward revision of the Malaysian consumer spending forecasts for 2021 is inevitable.

Towards this end, Fitch Solutions Country Risk & Industry Research (which is independent of Fitch Ratings) has revised downward its real household spending growth forecast for 2021 to 3.0% year-on-year (yoy) from the previous forecast of 11.0% yoy.

“While still positive, we do highlight this is partly caused by base effects,” justified the research house. “The estimated -3.7% yoy drop in 2020 real household creates a low yoy base for 2021 to grow from.”

In nominal terms, total household spending will be worth RM900 bil (US$217 bil) in 2021, slightly lower than the RM905 bil (US$220 bil) estimated for the pre-COVID-19 environment in 2019.

According to Fitch Solutions, retail sales in Malaysia continue to be weak over 1H 2021 with growth mainly coming from a low base. This weakness stems from the lack of significant relaxation in restrictions, impacting both consumers and retailers.

The research house further noted that continued restrictions on inter-district and inter-state travel within the Klang Valley which accounts for approximately 60% of retail sales in the country will delay this recovery.

“However, we note that these restrictions continue to speed up the development of the country’s e-commerce sector. The online retail sales index which portrays e-commerce activity continued to surge to record 23.1% growth yoy,” observed Fitch Solutions.

All-in-all, the research house said its global view for a notable recovery in consumer spending relies on the ability of the authorities to vaccinate a large enough proportion of their populations and thereby bring about a notable drop in COVID-19 infections and a decline in death rates.

“Both these factors will lead to the Government gradually lifting restrictions which will boost consumer confidence and retail sales,” reckoned Fitch Solutions.

“While the Health Ministry has developed a COVID-19 national vaccination plan whereby between 60% and 70% of the population (20 million to 23 million people) will need to be vaccinated to achieve herd immunity, the vaccination drive has so far been slow.”

As of July 11, only 24.2% of the Malaysian population had received a single dose of the COVID-19 vaccine. – July 22, 2021

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