More cautious spending trend forecast for consumer sector

Price-sensitive consumers are anticipated to be more cautious in their discretionary spending this year, mainly due to the global economic slowdown.

MIDF Research in a report said consumer spending will also be impacted by potentially higher inflationary pressure due to fiscal measures.

“We also notice that consumers are now looking for cheaper alternatives like private label brand products.

“To a certain extent, consumers are also deferring purchases or even prefer purchases with instalment options, rather than cash or credit.”

In terms of sub-sectoral performance, MIDF Research said food and beverage (F&B) and tobacco stores will remain top performers in 2024 due to inelastic demand.

The research house added that the F&B segment will also be buoyed by steady job market prospects.

Further, various cash assistance and initiatives introduced in Budget 2024 that could fuel spending on staple food are forecast to help.

Separately, MIDF Research said most global agricultural commodities remained elevated, with global tight supplies being key factors.

“Average three-months futures global commodity prices for key raw ingredients in F&B production, such as raw sugar, white sugar, cocoa, robusta, arabica and polyethylene terephthalate (PET) resin, all remained elevated in February 2024.

“This was primarily attributed to tight global supplies caused by extreme weather that reduced production output.”

Further, MIDF Research said Brazilian port congestion and traffic at the Panama Canal eased in February 2024.

Additionally, the research house said there is a possibility that the higher service tax and the expected rationalisation of fuel prices in Malaysia will influence the logistics cost of agricultural commodities to F&B producers’ manufacturing plants from the port.

“This is given the cost-plus-margin business of logistics providers,” it said.

MIDF Research anticipates that companies such as Nestle (M) Bhd, Fraser & Neave Holdings Bhd, Hup Seng Industries Bhd and Spritzer Bhd will be impacted.

It said this is primarily due to the significant contribution of raw material costs to its production expenses, likely affected by the delivery of raw materials to the production facilities.

“On the other hand, we expect PET resin prices to remain low in 2024 compared to 2022.

“This is in tandem with our in-house analyst’s expectation that Brent crude oil will remain at US$84 per barrel on average in 2024, as well as concerns about weaker demand from China pressuring the price lower,” it said.