CONSUMER sentiments will continue to be weak with many still missing the feel-good factor and being hesitant to loosen their purse strings this year, said economists.

This despite the economic growth expected to trend in a fairly stable territory in 2019.

Senior research fellow at the Malaysian Institute of Economic Research (MIER) Shankaran Nambiar told The Malaysian Insight that expectations on the ground might not match Malaysia’s growth story.

“Consumer sentiments may be creeping down. MIER’s consumer sentiments index for 4Q 2018 (fourth quarter of 2018) was at 96.8, below the threshold of 100 (100 and above is positive).  

“Not only has consumers’ assessment of present conditions contracted, their expectations for the next six months is also lower than what was in the previous quarter.

“MIER’s business conditions index for the same period is also below 100, standing at 95.3,” he said.

He also said the government has a huge task in its hands to restore consumer sentiments.

“Given that we’re expecting lower growth and expectations are flagging, a lot has to be done to restore sentiments.

“Why? Because we have to depend on domestic demand – and that can only come from a more positive outlook as felt by the man on the street.”

Economics professor Yeah Kim Leng from Sunway Business School said consumer spending is expected to moderate along with household spending, which trended above moderate levels during the tax holiday and reduction in tax burden under the sales and service tax (SST).

He noted that the moderation in consumer spending and weaker sentiments is understandable, as firms continue to hold back from hiring and increasing salaries in anticipation of a challenging economic conditions.

“The government’s income support and efforts to reduce the cost of living burden of the low and middle income households will also be important in propping up the pace of household spending expected this year.”

Socio-Economic Research Centre (SERC) executive director Lee Heng Guie meanwhile said the fourth quarter gross domestic product (GDP) growth, which stood at 4.7%, has already factored in the impacts of the SST.

However, Lee said the general sentiment on the ground is that consumers are still very cautious when it comes to spending.

Bank Negara Malaysia yesterday announced that Malaysia chartered a GDP growth of 4.7% for both the fourth quarter of 2018 and the full year of 2018.

Domestic demand expanded at a more moderate pace of 5.6% compared to 6.9% in the third  quarter of 2018.

Private consumption growth remained robust at 8.5% in the fourth quarter of 2018, albeit slightly lower than the 9% recorded in the previous quarter.

Looking ahead, Lee is predicting a 4.7% GDP growth for 2019, whereas Yeah is slightly more optimistic with a projection of close to 5% given that there is no escalation to the US-China trade war and Britain’s orderly exit from the European Union (Brexit).

Yeah foresees an upward growth trajectory in the range of 4.5% to 5% in 2019, as growth having already bottomed out in the past quarters.

Impact of trade war

Lee, Yeah and Nambiar all concurred that Malaysia’s GDP growth for 2019 will be influenced by the outcome of the US-China trade spat.

“While global growth is projected to inch marginally lower this year, the Malaysian economy may buck the trend after seeing through a difficult year in 2018 marked by the change in government and the start of a massive financial clean-up.

“With the fiscal outlook stabilised, there is good prospect for a pick up in investment activities to offset the anticipated moderation of household spending that grew due to tax holidays and reduction in tax burden under the SST,” said Yeah.

Lee, however, said he is still wary about private investment which already saw a slowdown in momentum.

The prospect of private investment could be undermined in the near term by the uncertainties stemming from external headwinds, the lack of clarity in the new government’s policy direction and investors still adjusting to the government’s policies, he added.

Nambiar meanwhile noted that there is legitimate concern that the Malaysian economy might slip into a slower growth as global economic outlook does not look “terribly promising” with the International Monetary Fund cutting growth forecast to 3.7% from 3.9%, thanks to the trade tension.

He said the US-China trade tension matters to Malaysia because it affects global markets, which in turn affects global demand for Malaysian exports, and China is Malaysia’s most important trade partner.

“Malaysia’s export profile will also be impacted by the state of the global electronics industry in 2019. At least in the near-term the global electronics industry is expected to grow at a slower pace, although one cannot rule out a downturn in electronics exports.

“Another important export item, palm oil, does not seem to have a bright outlook looking forward. India has cut its import tax on palm oil – and that is good news.  

“But other factors tend to moderate that phenomenon. China has high inventories and is likely to go soft on its imports from Malaysia,” he said.

The instability in crude oil prices was also flagged as an area of concern, which could have its repercussions on export revenue. – February 15, 2019.