HOUSEHOLD SPENDING TO GROW BY 5.0% OVER 2024 -- BMI

BMI, a Fitch Solutions company, foresees Malaysia's household spending growing by 5.0% year-on-year (y-o-y) over 2024 to RM903.8 billion as economic growth persists and consumption levels normalise.

In a research note, BMI said it has a cautious but positive outlook for consumer spending in Malaysia over 2024, as the economic recovery will translate into strong real consumer spending growth over the full year.

"Household spending over 2024 will mark the return to pre-Covid levels of growth (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," it said.

BMI added its forecast for y-o-y growth in consumer spending in Malaysia over 2024 is in line with its Country Risk team's forecast that the economy would grow by a real rate of 4.4% y-o-y over the year.

It also noted that Malaysia would still post solid growth compared to other markets driven by the recovery in the tourism sector, especially after China reopened for travel.

Meanwhile, BMI said consumer confidence has largely been declining, reflecting a weakening consumer mindset as inflationary pressures in certain commodities, such as food and fuel, weigh on low—and mid-income households.

"However, consumer confidence data in the fourth quarter of 2023 averaged 89.4, an increase from 78.9 in the third quarter of 2023," it said.

On the ringgit, BMI expects it to remain stable against the US dollar at 4.60 from 2023 to 2024.

"Malaysia remains heavily reliant on imports to meet local demand, and the stability of the exchange rate means that while it will not benefit from cheaper imports, consumer spending growth will not be hindered by a weakening exchange rate.

"We believe that this backdrop will result in consumer spending over 2024 remaining stable," it said.

BMI said inflation in Malaysia has been relatively tame, peaking at 4.7% y-o-y in August 2022, and the latest data for February 2024 puts inflation at 1.8% y-o-y.

"Our Country Risk team forecasts inflation will maintain at this level, averaging 2.0% over 2024. The risk is that inflation rises and remains elevated at those levels for longer than anticipated, which will accelerate the erosion of household purchasing power," it added.