KUALA LUMPUR,. Strong employment and income support will allow Malaysian consumers to continue prospering in 2018, according to BMI Research that said this will be the backbone of the economy’s expansion.
Citing the country’s current full employment, the research house noted that Malaysia’s joblessness level stood out in the region as among lowest — just 3 per cent — compared to neighbours Indonesia and the Philippines where 6 per cent and 7 per cent of the population, respectively, did not have work.
It also cited government policies to raise the minimum wage last year and provide cash assistance to support consumer spending as other factors that will boost domestic spending.
“The Malaysian consumer will continue to do well into 2018, driven by robust economic growth, and low levels of inflation and unemployment.
“While high levels of household debt and plans to expand the goods and services tax (GST) to a wider range of goods poses downside risks to consumers, we believe rising incomes will help mitigate this,” BMI Research said.
Although the economy is expected to grow by 5.5 per cent this year, marginally down from the full-year gross domestic product (GDP) growth of 5.9 per cent for 2017, it said private consumption was still set to expand by 6 per cent.
Aside from the strong employment levels, it said local inflation was also easing and forecast to drop to 3.0 per cent or 0.2 percentage points lower than 2017.
BMI said the stronger local spending and earnings would also be positive for the government’s coffers in the form of increased collections for its income and consumption taxes.
While there was concern that the widening of the goods and services tax (GST) would dampen consumer spending, BMI Research cited historical data since the levy’s introduction in 2015 to suggest that the effects would be muted.
Beyond the over RM6 billion that Putrajaya is set to hand out in the form of 1Malaysia People’s Aid (BR1M) and other forms of assistance, it said the government was also expected to announce additional measures ahead of the 14th general election.
“The greatest downside risks to the Malaysian consumer comes from the high household debt levels that have accumulated since the global financial crisis
“A rapid unwind of the household credit boom has the potential to result in a collapse in domestic demand amid declining property prices,” it warned.
Bank Negara Malaysia said this month that the level of unsold residential property was at the highest in a decade, with home prices considered “seriously unaffordable” to average wage earners.
The issue could also be compounded by the central bank’s move to raise its overnight policy rate by .25 basis points last month, which BMI Research previously predicted could be doubled before the year is out.
Malaysians collectively owe the equivalent of 68 per cent of the country’s entire economy, up from 49.5 per cent a decade ago.
“This represents one of the highest levels in Asia and together with low levels of savings, household spending in the long term could be weakened, particularly when it comes to premium and big-ticket purchases,” BMI Research noted.
However, it said the debt level was still manageable given Malaysians’ earning power and the rate at which local consumers were still borrowing.