Dent in spending

Analysts say B40 purchasing power to be most affected

PETALING JAYA: Consumer spending risks falling off a cliff as more Malaysians are retrenched or undertake pay cuts, according to experts.

The biggest hit on purchasing power will be felt by the bottom 40% (B40) group, and to an extent, the middle 40% (M40) population.

According to Socio-economic Research Centre executive director Lee Heng Guie, the B40 and M40 households are vulnerable to the loss in employment and income amid lower cash reserves or savings buffer, compared with the top 20% (T20) households.

For context, B40 households are those earning below RM4,360 per month, M40 with monthly household income of between RM4,360 and RM9,619, while the T20 households earn more than RM9,619 monthly.

“Ninety-two per cent of total employment loss year-to-date are those earning between RM1,000 and RM8,000 per month. Selfemployed petty traders and daily rated blue-collar workers were badly affected during the movement control order (MCO).

“We expect private consumption to pull back to an estimated 1.5% to 2% in 2020 from an average of 7.1% per annum in 2011-2019,” Lee said.

Meanwhile, Sunway University economics professor Yeah Kim Leng said rising unemployment would not bode well for private consumption, which makes up nearly 60% of the country’s gross domestic product.

While there is some relief from the cash support provided by the government, Yeah said the retrenched workers would continue to spend less.

“Based on the Statistics Department’s household expenditure survey, the T20 households account for 55% of monthly household spending whereas the M40 contribute 29% and B40, 16%.

“It is, therefore, important that the confidence of the high and upper middle income consumers holds up in the face of rising unemployment to avert a deep and protracted economic downturn,” he said.

Malaysian Employers Federation executive director Datuk Shamsuddin Bardan warned that most of the unemployed in the upcoming months would be those in the informal sector as well as small and micro businesses, especially those who are paid on a daily basis.

“In addition, 500,000 are added to the workforce this year, with limited job opportunities due to the hiring freeze implemented by most private sector employers.

“Based on the number of employees retrenched as at end-march, about 70% were from the B40 and 28% from M40 and this trend is likely to continue,” he told Starbiz.

Asked to comment on Bank Negara’s projection that the labour market conditions would improve by the third quarter of this year, Shamsuddin said it was “overly optimistic”.

“The forecast by Bank Negara is reflective of the unemployment situation that it would peak in the second quarter, but I do not agree that it would recover from the third quarter as many industries in the services sector such as tourism, hotel, restaurants, retail and other industries such as construction and manufacturing will take a longer time to recover because of lower consumer sentiment and demand.

“The downward lingering effects of Covid19 are expected to be up to the second quarter of next year and beyond,” he said.

According to Shamsuddin, the government’s stimulus packages had not been able to incentivise employers to retain their employees.

As an example, he said the wage subsidy programme (WSP), which is a key feature of the stimulus packages and offers wage subsidy of RM600-RM1,200 per employee, comes with various restrictions and limitations.

The WSP does not cover employees earning more than RM4,000 wages per month and is limited to 200 employees per employer. It is also applicable for only three months.

“The amount of wage subsidy is less than 17% of total wages bill per month in the private sector,” said Shamsuddin.

While the Malaysian economy has been gradually reopened with the conditional MCO, Lee forecast the country’s unemployment rate to hit between 4.5% and 6.5% in the second and third quarters.

In March, the unemployment rate increased to 3.9%.

Lee said that some of the temporary factors that helped to partially offset the impact of job and income losses on consumer demand were cash handouts, loans moratorium, withdrawals from the Employees Provident Fund (EPF) and a voluntary reduction in employee’s EPF contribution rate.

Moving forward, while consumer sentiment is expected to remain cautious in times of economic downturn and the Covid-19 pandemic, Lee believed that consumers may slowly return to normal spending behaviour.

“Spending will be discretionary and focusing on necessities, and less on big-ticket items. For example, our channel checks indicate that consumers may consider buying used cars to minimise depreciation value, amid lower prices and lower hire purchase loan rates.

“Some spending habits will also likely be altered, but spending trends related to non-travel e-commerce and online grocery will likely accelerate, which had started to take hold during the MCO,” he said.

On the property market, Lee said economic recession, rising headcount cut and lower wages are expected to dent buying interest even though lower mortgage rates have increased households’ purchasing power.

“Nevertheless, some prospective home buyers and investors with stable income and employment may decide to look out for opportunities given the expected long period of interest rate normalisation from the current overnight policy rate of 2% as of this month.

“During the 2008-2009 global financial crisis, it took six years for Bank Negara to normalise the benchmark policy rate from 2% in 2009 to 3.25% in 2015,” he said.

Commenting on the purchase of big-ticket items such as cars and properties, which are key to resuscitate the economy, Yeah said the sales of such items may not suffer drastic decline since the T20 households have greater income buffers and savings.

“Even if it is sharp, the recovery is expected to be quick once the pandemic pall is lifted.

“Other conditions such as the restart of production and business activities, resumption of exports together with low interest rates and government stimulus will be supportive of a measured consumption recovery in the second half from the expected plunge in the second quarter,” said Yeah, who is also the deputy president of the Malaysian Economic Association.