RHB Bank: Consumer spending will recover in 2H2023

KUALA LUMPUR (21 Oct): RHB Bank Bhd expects sluggish consumer spending to continue in the first half of 2023 (1H2023), followed by a recovery in the second half of 2023 (2H2023), after a slowdown in consumer spending in the fourth quarter of 2022 (4Q2022).

In a research note published Friday, October 21, the group’s chief economist and head of market research, Dr Sailesh K Jha, said a further slowdown in household income from the services sector would continue until in the first quarter of 2023 (1Q2023) and the bottom of the consumer spending cycle could be in the second quarter of 2023 (2Q2023).

“We expect a recovery in consumer spending in 2H2023, driven by the stabilization of household income from the service sector and the unemployment rate.

“1H2023 will also reflect unemployment peaking at around 4.1% in 2Q2023, followed by 4% in 4Q2022 and 3.8% in 4Q2022,” he said.

He said that since a recovery in the unemployment rate has a simultaneous impact on consumer spending and the impact is felt in both quarters, the full impact on consumer spending from an increase in the rate unemployment would be felt in 1H2023 and would be negligible in 2H2023.

Sailesh said the majority of the slowdown in overall consumer spending in 1H2023 is expected to come from a deceleration in spending on non-essential goods, while the recovery in consumer spending in 2H2023 could likely be driven by spending on non-essential goods.

He said spending on non-essential goods could pick up at a faster pace compared to spending on essential goods in 2H2023, as inflationary pressures ease and the business cycle turns north, which is good for conditions. labor market with an unemployment rate peaking at around 4.1% in 2Q2023, followed by 4% at the end of 2023, as well as the possibility that cash transfers will be an important component of the 2023 budget.

Apart from domestic factors, he said Malaysia’s consumer spending could be affected by external factors such as a slowdown in the United States (US) and economic activity in Singapore.

He said a slowdown in US consumer spending is associated with a deceleration in consumer spending and job creation in Malaysia, while a deceleration in Singapore’s gross domestic product (GDP) growth is normally associated with a decline in Malaysia’s tourism receipts.

“A slowdown in tourism receipts will ensue in 1H2023, as GDP growth in Singapore slows.

“Household income from the service sector is, to some extent, driven by the tourism sector and this, in turn, is an important channel through which consumer spending is stimulated in Malaysia.

“We expect the first signs of a slowdown in tourism to appear in late 2022, implying then that the full impact on Malaysia’s consumer spending will be felt within one to two quarters after this moderation,” he said.

He said the projections are based on impulse response functions generated by vector automatic regression (VAR) models, as well as an understanding of external economic conditions and domestic labor market conditions from 4Q2022 to 2023.

“We maintain our GDP growth forecast of 6% year-on-year for 2022, with the balance of risks tilted to the upside; and our GDP growth forecast of 4.5% in 2023,” he added.