Faltering consumer confidence could dent growth say analysts

BY IDA LIM AND BOO SU-LYN

JANUARY 30, 2014

File photo shows shopping mall Suria KLCC in Kuala Lumpur. — AFP pic

KUALA LUMPUR, Jan 30 — Malaysia’s economic growth prospects could be at stake as consumers rein in their spending to cope with the spiralling costs of living, economists said.

A week after data showing that inflation was at the highest level in nearly two years, a key barometer of consumer sentiment out on Tuesday plumbed depths not seen since 2008 . The news sparked concerns that consumer spending may be about falter, denting the country’s overall economic growth.

“Consumers are feeling or anticipating the pinch to income and purchasing power as inflation rises with subsidy rationalisation and upcoming GST,” Maybank Investment Bank chief economist, Suhaimi Ilias told The Malay Mail Online.

Malaysia’s government reduced fuel subsidies last year, pushing up petrol prices by around 10 per cent while electricity rates went up 15 per cent at the start of the year. The government plans to charge a 6 per cent flat rate goods and services tax in April 2015.

Against this backdrop, Suhaimi predicted that consumer spending growth could slow to 6.8 per cent or even lower this year after rising by 7.6 per cent in the first nine months of 2013.

His comments came after data out Tuesday showed that consumer confidence, as measured by a Malaysian Institute of Economic Research (MIER) survey, plunged to its lowest point since the 2008 financial crisis.

MIER attributed the fall to declining household finances as well as a weaker job market. It predicted that consumer spending growth will “ remain modest, if not slower”.

“In the past, a significant drop in consumer sentiment is a prelude to slowing consumer spending,” said Suhaimi at Maybank Investment Bank.

There is a risk that consumer spending growth may slow by more than expected, given that consumer sentiment has fallen three quarters in a row, he added.

But Suhaimi said the risk may be mitigated by higher tourist spending during Visit Malaysia Year 2014 and as Malaysians use up the government’s cash handouts under the Bantuan Rakyat 1Malaysia programme.

If weak consumer confidence translates into people spending much less, Malaysia’s gross domestic product growth could fall short of the 5 per cent many expect , said Dr Yeah Kim Leng, chief economist at RAM Holdings Berhad.

“It’s likely that consumer confidence has been affected by the price hikes and uncertainty over the extent which inflation will rise,” Yeah told The Malay Mail Online today.

But overall, consumer spending will continue to be propped up by the young working population, Yeah added.

Kenanga Investment economist, Wan Suhaimie Saidie, said it was too early to say if consumers would be spending less this year.

If consumer spending does slow, Malaysia’s economic growth would be closer to 5.0 per cent than 5.5 per cent, he said.

“If the government doesn’t spend and the private sector is also not in a hurry to spend or invest, we will have an overall impact on sentiment - private consumption would definitely be slower,” he added.

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