KUALA LUMPUR – RHB Bank Bhd expects the slow pace of consumer spending to continue in the first half of 2023 (1H2023) followed by a recovery in 2H2023 after a slowdown in consumer spending in the fourth quarter of 2022 (4Q2022).
In a research note today, group chief economist and head of market research Sailesh K. Jha said a further slowing of household income from the services sector would continue until 1Q2023 and the bottom of the consumer spending cycle could be in 2Q2023.
“We expect a recovery in consumer spending in 2H2023 driven by stabilisation of household income from the service sector and unemployment rate.
“1H2023 will also reflect the unemployment peaking at around 4.1% in 2Q2023 followed by four% in 4Q2022 and 3.8% in 4Q2022,” he said.
He said since a pickup in the unemployment rate impacts consumer spending contemporaneously and the impact is felt within two quarters, the full impact of consumer spending from a rise in the unemployment rate would be felt in 1H2023 and would be negligible in 2H2023.
Sailesh said the majority of the slow-down in aggregate consumer spending in 1H2023 is expected to emanate from a deceleration in non-essentials good spending while the 2H2023 recovery in consumer spending is likely to be driven by non-essentials good expenditures.
He said non-essential goods spending could recover at a faster rate than essential goods expenditures in 2H2023, as inflationary pressures recede and the business cycle turns north, which is good for labour market conditions with the unemployment rate peaking around 4.1% in 2Q2023, followed by 4% at end-2023, along with the potential for cash transfers to be a significant component of Budget 2023.
Besides domestic factors, he said Malaysia’s consumer spending might be affected by external factors such as a slowdown in the United States and Singapore’s economic activity.
He said a slowdown in US consumer spending is associated with a deceleration in Malaysia consumer spending and job creation, while a deceleration in Singapore’s gross domestic product (GDP) growth is normally associated with a drop in Malaysia tourism receipts.
“A slowdown in tourism receipts will ensue in 1H2023 as GDP growth in Singapore slows.
“Household income from the services sector is, to some extent, driven by the tourism sector and this, in turn, is an important channel via which consumer spending is driven in Malaysia.
“We expect early signs of a slowdown in tourism to arise at end-2022, which then implies that the full impact on Malaysia’s consumer spending will be felt within one to two quarters of this moderation,” he said.
He said the projections are based on impulse response functions generated by vector autoregression models along with an understanding of external economic conditions and domestic labour market conditions in Q4 2022 to 2023.
“We maintain our 2022 GDP growth forecast of 6% year-on-year with the balance of risks tilted to the upside and our 2023 GDP growth forecast of 4.5%,” he added. – Bernama, October 21, 2022
