Published November 20, 2008

ANALYSIS
Malaysia consumption not out for the count

Government measures expected to buoy spending

By PAULINE NG
IN KUALA LUMPUR
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THE signs are not good. Survey after survey paints a bleak picture of consumer sentiment, sparking fears that consumption as an engine of economic growth is under threat. But the sense of doom and gloom may just be overblown.

Still selling well: Malaysia's private consumption grew 9 per cent in the second quarter, after 11.7 per cent in the first quarter

Yes, a recent MasterCard consumer confidence survey, conducted in late September to mid-October on 14 Asia-Pacific economies shows that Malaysia was in the bottom half. Among South-east Asian states, it came in second-last, ahead of politically wrecked Thailand which scored 26.2 - the result of political strife and street demonstrations which wore down the Thai middle class, the credit card issuer said.

Malaysia's score of 35.9 for the second half of the year - little changed over the first-half of 36.9 - was far lower than the 62.3 for Singapore, which is already in a technical recession.

Amazingly, even runaway inflation of 28 per cent in September did little to dampen Vietnamese optimism; the nation scored 88.1 - the highest of all Asia-Pacific markets surveyed.

Findings by independent think tanks show the same trend. A Merdeka Centre survey in July found only a quarter of respondents being 'very or somewhat favourable' towards the economy, compared to 59 per cent in February.

Separately, the Malaysian Institute of Economic Research said that 'signs of consumer moderation are becoming more apparent' after its consumer sentiment survey for the third quarter plunged nearly 30 points year-on-year.

But there are still bright spots. Retail sales, which came to US$67.1 billion last year, is still expected to rise 7 per cent to US$71.8 billion this year.

And consumption is still expanding. Private consumption grew 9 per cent in the second quarter, after 11.7 per cent in the first quarter.

One forecast puts 2008 growth at 7.4 per cent, down from some 11 per cent last year. The economist behind the forecast expects the uptrend to continue next year, albeit at a sharply slower pace of 2-3 per cent.

Various indicators - car sales, government tax revenue, imported consumer goods, among others - show that consumer spending is weakening, he said. 'But it is not collapsing.'

The economist also sees growth in the gross domestic product next year, though his forecast of 1.5 per cent is a far cry from official estimates of 3.4 per cent.

Measures including five successive fuel price cuts, highway toll discounts at certain periods, cuts in hypermarket prices, and allowing employees of the nation's biggest pension plan to reduce their monthly contributions by 3 percentage points are expected to buoy consumer spending.

The Employees Provident Fund move is expected to inject at least RM2.5 billion (S$1.06 billion) a month into the economy - even if only half of the members take it up.

The release of third-quarter growth data next week will provide a clearer picture of the challenges ahead.

But let's not jump the gun and allow poor sentiment to become actual distress.