Malaysia: Private consumption seen slowing in 2019

• Sep 19, 2018

PETALING JAYA: Populist policies introduced by the government, along with an expanding economy and low levels of inflation and unemployment, have boosted consumer spending in 2018.

Fitch Solutions Macro Research said high frequency indicators also pointed to the health of the Malaysian consumers, with consumer confidence and retail sales picking up since the beginning of 2018.

“Adding further upside to the consumer outlook is the continued uptake in household loans and loans forming a larger share of overall loans undertaken by consumers, creating opportunities for spending on big-ticket items,” it said in a report.

However, the research house noted that private consumption would slow year-on-year in 2019 due to the reinstatement of the sales and service tax (SST) in the fourth quarter of 2018, whereby the effects would be felt in the first quarter of 2019 and beyond.

“Regardless, Malaysia remains one of the most attractive consumer markets in Asia,” it said.

The research house said it expected real private consumption growth to retain its momentum over the rest of the year, at 8.5% in 2018, up from 7% in 2017.

It said the strong uptick in 2018 would be the result of populist policies introduced by the Pakatan Harapan coalition.

The two populist policies were the three-month tax holiday due to the government cutting the goods and services tax to 0.0% from June 1, and the reintroduction of fuel subsidies in June by fixing the prices of the cheaper RON95 petrol and diesel.

“That said, we expect private consumption to slow in 2019 to 5.3% due to the reinstatement of the SST in fourth quarter 2018 with the effect due to be felt in first and second quarters of 2019, and the high likelihood that consumers have been front-loading their purchases in third quarter 2018 to take advantage of the tax holiday,” it said.

Over its medium-term forecast period of 2018-2022, Fitch Solutions expects real private consumption growth to average at 5.8%, above the regional average of 5.3%.

Source: https://www.thestar.com.my/business/business-news/2018/09/19/private-consumption-seen-slowing-in-2019/#jwBv5fmo0ex13y5l.99