Consumer sentiment index soars to 21-year high

Optimism based on change in political landscape and GST abolition

An all-time high 39% of the respondents were hopeful that their incomes would improve in the second half of 2018.

Malaysian Institute of Economic Research

PETALING JAYA: Consumer sentiment in Malaysia has turned positive for the first time in four years amid the change in the country’s political landscape and zero-rating of the goods and services tax (GST).

According to the Malaysian Institute of Economic Research (MIER), the consumer sentiment index (CSI) soared to a 21-year high of 132.9 points during the second quarter of this year. This is the first time the index has breached the 100-point optimism threshold since the second quarter of 2014.

The think-tank noted that the current household finances appeared to be in better shape, while expectations on hirings and incomes had improved and inflationary jitters had dissipated during the quarter in review. These were some of the main factors contributing to consumer optimism.

MIER said its survey of 1,200 households in Peninsular Malaysia found the biggest contributor to consumer optimism stemmed from the “expectations” component, boosted by the recent change in the political landscape as well as the abolition of the GST.

Consumers were also positive about the near-term employment market, while inflationary expectations had fallen to an all-time low, said MIER.

“An all-time high 39% of the respondents were hopeful that their incomes would improve in the second half of 2018, with a 14-year low of 6% responding negatively.

“A majority of 41% believed that more jobs would be available soon, the highest since the first quarter of 2013. The 9% who responded otherwise is also the lowest in almost 18 years,” it said.

On inflationary expectations, MIER said an all-time low of 24% of respondents said they believed prices would rise in the coming months, noting that higher-income, urban and northern consumers were most pessimistic.

Amid the optimism, a record high of 43% of the respondents were of the opinion that the second quarter of 2018 was a good time to buy or invest in major consumer durables, MIER’s survey found.

However, it cautioned that while the current tax holiday (in the absence of the GST) had contributed to consumer optimism, the sustainability of such sentiment could be affected by the implementation of the sales and service tax (SST) by September.

Under the SST regime, goods will be taxed 10% and services, 6%.

Meanwhile, businesses were also optimistic during the second quarter of the year, driven primarily by new domestic orders, higher investments and higher expected production and export sales in the next quarter.

MIER’s business conditions index (BCI) hit a three-year high of 116.3 points.

Its survey of more than 350 manufacturing businesses found that both domestic and export orders had increased, production accelerated, investment spending risen, and the rate of capacity utilisation improved during the quarter in review.

MIER said its survey showed that the business outlook would remain positive in the coming months.

While local sales are expected to deteriorate and there would be upward pressure on prices, export orders are expected to pick up further in the third quarter of this year and production is expected to increase.

Businesses, however, expect employment prospects to remain unexciting, while wage costs are expected to rise in the coming quarter.

Separately, accounting and consulting firm Grant Thornton Malaysia said business optimism had risen sharply following the election of the Pakatan Harapan government.

Its gauge of business optimism increased 24 percentage points to 52% in the second quarter of this year from 28% in the preceding quarter.

In a statement, Grant Thornton Malaysia country managing partner, Datuk NK Jasani, said the group’s International Business Report indicated that Malaysian businesses were upbeat and confident on the outlook of the country’s economic landscape.

“The outcome of the 14th general election has contributed to this significant increase in confidence among Malaysian businesses and the results can be seen in various sectors,” he said.

“The new emphasis on accountability and transparency has contributed to the newfound business confidence. The government should now emphasise on business transparency and have a business-friendly budget to continue this positive momentum,” he added.