Malaysia: Personal spending to ease

PETALING JAYA: Personal spending in Malaysia is expected to moderate this year amid the rising cost of living. Pressure on private consumption is also seen coming from higher interest rates and the waning impact of the special Employees Provident Fund (EPF) withdrawal scheme.

Given the challenges, TA Research has projected a slower growth of 7.2% in personal consumption expenditure in 2023, as compared to the 11.3% growth seen in 2022. The brokerage’s projection, nevertheless, is more optimistic than the government’s 6.1% growth forecast for personal consumption expenditure in 2023 as published in the latest Malaysia Economic Outlook.

According to TA Research, personal consumption expenditure this year would be supported by the steady recovery in the labour market and sustained economic and social activities, particularly in the tourism industry following the reopening of China’s borders.

“However, this growth rate has moderated from the 11.3% growth seen in 2022, due to diminishing pent-up demand from the special EPF withdrawal and the lag effect from the overnight policy rate (OPR) hike last year,” the brokerage wrote in its report.

“The government is providing cash assistance for the B40 group (Sumbangan Tunai Rahmah) and special financial assistance to civil servants and pensioners to support household spending and minimise the impact of the rising cost of living,” it added.

TA Research noted the higher OPR could lead to higher borrowing costs for individuals and businesses, which in turn could reduce spending and negatively impact personal spending and the overall economy.

Bank Negara in total raised the OPR by 100 basis points last year. The central bank could raise the OPR by at least another 25 basis points to 3% as early as May this year, TA Research said.

“This move may affect consumer behaviour going forward, as it could increase borrowing costs and reduce discretionary income. It’s worth noting that the central bank has paused its monetary actions in two consecutive meetings and is being cautious about the potential effects of its actions,” it explained.

“While raising interest rates can help control inflation and maintain the stability of the economy, the central bank must also be mindful of the impact on consumer behaviour and the overall health of the economy,” it added.

TA Research noted that personal spending was a crucial indicator of the economy’s health, reflecting the amount of money people spend on goods and services for personal use.