Consumer spending seen continuing to drive Malaysia's economic growth

13 Jul 2016 / 05:40 H.

    PETALING JAYA: Consumer spending or private consumption is undoubtedly the key driver to Malaysia’s economic growth but economists have mixed views on whether an overdependence on it is healthy.
    CIMB Investment Bank chief economist Maslynnawati Ahmad opined that consumer spending can drive growth.
    She said consumer spending will continue to be the main driver for the Malaysian economy because it accounts for the biggest share of domestic demand.
    “At this point, we think that consumer spending will slow down but the slowdown will not be dramatic. Because of that, it will continue to drive growth for 2016,” she told SunBiz.
    Maslynnawati said consumer spending is expected to slow down to 4% of the country’s gross domestic product (GDP) this year, compared with 6% last year.
    “Consumer spending of 4% is still considered okay. It’s not that dire. In fact that 4% will contribute to growth by 2.2 percentage points (ppt) because we (CIMB) are looking at 4.6% GDP growth this year.”
    With rising household debt, she said, consumer spending is in a way a concern, as the high household debt implies that access to credit will be tighter than before.
    “This time around, when you have high household debt and when banks turn cautious, you can see that loans approved to household are on a decline, and the economy is also slowing down. So we can expect that the high household debt is a factor that would trim consumer spending growth,” said Maslynnawati.
    BIMB Securities economist Imran Nurginias Ibrahim, however, opined that the Malaysian economy cannot rely on consumer spending alone even though it is part of domestic demand and one of the factors that drive GDP growth.
    He said countries like China and Indonesia can rely on domestic consumption to boost economic activity due to their huge population.
    “With our population, we cannot totally rely on domestic consumption. If we only focus on one sector to drive the economy, it will be a difficult task to generate the activities. Our population is not big enough,” explained Imran.
    He added that spending is also being capped by the income of Malaysian consumers.
    “All that will put some dent on consumption. That’s why we need other factors like exports, public spending/investment and other activities from other sectors, so that there’ll be income from other sectors as well.”
    Imran said the Malaysian economy is not in a bad shape despite expectations of a slowdown.
    “Our economy for this year is expected to slow compared to previous years, but we’re still expected to register growth of 4%-4.5% based on the government’s forecast. It’s still considerably okay.”
    Imran said the global slowdown and the low crude oil prices have bogged down the Malaysian and other economies. “If you compare us with other countries, we’re doing fine. Fundamentally we’re strong.”
    The Malaysian Institute of Economic Research said in its outlook the reliance on domestic demand to drive the growth of the economy is inevitably utmost important direction with the lacklustre global trade flows.
    Domestic demand was clearly still the impetus for growth in 2015 with 91.6% share of real GDP, which in turn is attributable to the private sector’s contribution, especially private consumption with a contribution of 52.4%.
    Heavy reliance on private consumption as a source of growth is a cause for concern, however, especially with rising household debt as a percentage of GDP.

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