Malaysia’s household spending expected to make a slow recovery in 2021, according to Fitch Solutions

People shop for groceries at the Jalan Othman wet market in Petaling Jaya April 20, 2021. — Picture by Miera Zulyana
People shop for groceries at the Jalan Othman wet market in Petaling Jaya April 20, 2021. — Picture by Miera Zulyana

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KUALA LUMPUR, April 30 — Malaysian household spending is expected to make a slow recovery in 2021 and beyond as the movement control order (MCO) is still in effect in the country due to rising Covid-19 cases, according to Fitch Solutions Country Risk and Industry Research (Fitch Solutions).

The Fitch Solutions Group unit had previously forecasted that real household spending would grow 11 per cent year-on-year back in January of this year.

However, this had been revised down to only 3 per cent year-on-year for 2021 and onwards.  

“In nominal terms, total household spending will be worth RM922 billion (US$222 billion) in 2021, slightly lower than the RM932.9 billion (US$225.3 billion) estimated for the pre-Covid-19 environment in 2019.

“We forecast real household spending in Malaysia will begin its recovery over 2021, growing by a projected 3 per cent year on year. We note that the economic impact of the Covid-19 pandemic created a significantly low base from which to grow,’’ said Fitch Solutions.

However, the retail sector still struggles with any form of growth and continues to be in decline due to the various movement restrictions put in place by the government to curb the spread of Covid-19.

“We also note that continued restrictions on inter-district and inter-state travel within the Klang Valley (centred on Kuala Lumpur and includes its adjoining cities and towns in the state of Selangor), which accounts for approximately 60 per cent of retail sales in the country, will delay this recovery.  

“However, these restrictions continue to speed up the development of the country's e-commerce sector. The online retail sales index, which portrays e-commerce activity surged to record 23.1 per cent growth year on year,’’ said Fitch solutions.

Back in February, Fitch solutions had revised Malaysia’s real GDP growth forecast to 4.9 per cent from 10.0 per cent due to the implementation of MCO2.0.

While the government had provided several economic packages to cushion the economic impact of the new movement restriction order, Fitch Solutions opined that unemployment figures are likely to rise but will begin to fall only in the second half of 2021 onwards.

Fitch Solutions estimated that the unemployment level for 2020 was at 4.2 per cent of the labour force and forecasted 4.5 per cent of unemployment for 2021.

In 2020, the Malaysian government announced five stimulus packages, totalling RM72 billion (US$17.8 billion or 5 per cent of GDP) with an additional RM7 billion (US$4.2 billion) in the 2021 budget allocated to on Covid-19-related measures.

In 2021, two new stimulus packages totaling RM35 billion with key initiatives include accelerated social security payments under the existing programmes, the expansion of the wage subsidy programme, and additional cash payments to the vulnerable, among others.

Globally, Fitch Solutions opined that notable recovery in consumer spending relies on the ability of authorities to vaccinate a large number of their population and subsequent low number of Covid-19 infections and death rates.  

This situation coupled with governments easing movement restrictions will add to consumer confidence and rise in retail sales, said Fitch Solutions.

For Malaysia, however, Fitch Solutions opined that its national immunisation programme is comparatively slower compared to its regional neighbours.

“While the Health Ministry has developed a Covid-19 national vaccination plan, whereby between 60 per cent and 70 per cent of the population (20 million to 23 million people) will need to be vaccinated to achieve herd immunity, the vaccination drive has so far been slow.

“As of April 25 2021, Malaysia has only administered 4.0 vaccine doses per 100 people. This is significantly lower than regional peers like China and Indonesia, who have administered 15.9 and 6.8 vaccine doses per 100 people respectively.’’

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