KUALA LUMPUR, Jan 30 ― Malaysian consumers and businesses expressed lower optimism in the second half of 2018 following an extraordinary spike in confidence attributed to the historic outcome of the 14th general election, according to a survey.
The Malaysian Institute of Economic Research (MIER) today released its quarterly survey findings on consumers and businesses, with both its Business Conditions Index (BCI) and Consumer Sentiments Index (CSI) for the fourth quarter of 2018 falling below 100.
Scores below 100 signify pessimism while those above indicate the opposite.
MIER executive director Zakariah Abdul Rashid noted that momentum has slowed for the BCI and CSI ladders in the second half of 2018.
“Maybe Pakatan Harapan was able to build hope, so Pakatan Harapan successfully built up consumers and businesses' hope for a better Malaysia, but now it's below 100,” he said at MIER's release of its Q4 2018 survey results.
“But this is only sentiments, we also have to look at real economic performance. Sentiment is short-term; but if you really wanted to build up the economy, it will take longer time.
“For instance, when Pakatan Harapan promised to undertake reforms especially institutional reforms, I believe the reform initiatives are ongoing and it takes time to materialise the results,” he added.
According to the survey results, the BCI showed a downward trend from the second quarter in 2017 at 114.1 points to 98.6 points in the first quarter of 2018.
During the second quarter of 2018 ― when GE14 took place ― the BCI shot up to 116.3 points or the highest in the last 13 quarters, before dropping to 108.8 points in Q3 2018 and now 95.3 points in Q4 2018.
As for the CSI, it catapulted to a 21-year high of 132.9 points for Q2 2018, going beyond the threshold of 100 points for the first time in years.
For Q3 2018, the CSI which measures consumers' confidence slipped to 107.5 points, before falling further to 96.8 points in Q4 2018.
When asked if the decline in business and consumers sentiments in Q3 and Q4 of 2018 was linked to the PH government's policies, MIER researchers instead attributed it to reality sinking in amid challenges posed by external factors.
Zakariah said the Q2 2018 sentiments may reflect an “over-reaction”, citing the election campaigning and social media buzz in GE14 over the 1Malaysia Development Berhad (1MDB) scandal and an unsustainable situation for the country under the Najib administration, followed by the GE14 results with PH taking over from the Barisan Nasional coalition.
“So that's why I feel those figures is a reaction or overreaction of that. After that, people start to rationalise, when they start to rationalise, the figures start going down,” he said.
As for the Q3 2018 and Q4 2018 decline, Zakariah highlighted global events such as the trade war between US and China, noting that the Malaysian government would not be able to do anything about the trade war.
“Unfortunately it's not only about our election and domestic economy in the country, but also events in the international environment, especially on the China-US trade war, it will affect us very badly because we are among the major suppliers of the value chain to China,” he said.
He noted the US' imposition of additional barriers against China imports, which would lead to China cutting down on sourcing materials from countries like Malaysia as it seeks to control production.
MIER senior research fellow Zulkiply Omar said the Q2 2018 spike in sentiments showed “people have hope because of the change of government”, noting that the subsequent decline was due to “economic reality, because of the economic conditions especially the world economy”.
“I think we have to be careful, it's a danger to tie direct to the government,” he said when addressing the question of whether PH policies affected sentiments of consumers and businesses negatively.
Zulkiply noted that domestic demand, which is within the government's control, drove the local economy’s growth last year and is expected to do so again for this year.
“So meaning, that's all the government can do. Domestically it has done its duty to make the economy grow. Unfortunately, the external demand is not within our control.
“For Q3 and Q4, BCI and CSI, that's the economic reality, because the real economic conditions, world economic conditions, doesn't matter what the government does, it will not change the international demand, but domestic demand is there.
“The economy is growing because domestic demand is still there to spur growth,” he said.
What about 2019?
In its report on its business conditions survey for Q4 2018, MIER noted that the drop in the BCI for the last three months in 2018 was triggered by slowing current business activity, but noted that slight increases in companies’ expectation for their production and export sales indicate optimism of some small but positive signs.
“Albeit uncertain global demand and investment activities, manufacturers are optimistic that their new business strategies that will be implemented in 2019 will show some positive sign.
“This indicates that the business activity is expected to be somewhat moderate in the next quarter,” MIER said in its report on the latest edition of its quarterly survey on business conditions which have been carried out since Q2 1987.
MIER said Malaysian consumers are expected to be cautious in 2019, also noting that the consumers are expecting hirings to remain sluggish and higher prices in the first quarter this year, among other things.
