By Sharina Ahmad
THE global spread of Covid-19 has taken its toll on overall consumer spending which has declined sharply mainly due to the enforcement of the movement control order (MCO) since March 18.
During this period, consumer spending has halved in most categories, except for food and beverage, communications and education.
According to a survey by the Department of Statistics Malaysia (DOSM), the average monthly household expenditure has fallen 55% from RM6,317 to RM2,813 while total household expenditure, excluding non-consumption expenses such as loan repayments, savings, income tax deductions, contributions to the Employees Provident Fund and Social Security Organisation (Socso), dropped 48% from RM4,033 to RM2,110.
Clothing and footwear took the heaviest beating in consumption expenditure with a 95% decline, followed by transport at 89% and restaurants and hotels at 86%.
However, this begs the question — when will consumer spending normalise?
Sunway University Business School professor of economics Dr Yeah Kim Leng said for households that suffer a loss of income either due to salary reduction or retrenchment, it will take some time to restore their finances before spending normalises, notwithstanding the income support by the government.
“The time it takes to repair household balance sheets will depend on employment and wage growth prospects.
“Likewise for unaffected households, continuing uncertainties over the economy together with infection risk and social distancing practices will restrain spending,” he told FocusM.
Consequently, the consumption rebound after the MCO is expected to be muted.
Yeah said the post-pandemic “new normal” of subdued spending both locally and globally will persist until an effective vaccine or cure is found, which experts reckon will take 12-18 months.
“Even that is conditional upon the availability, access and cost of the vaccine or treatment, thereby slowing the pace of consumption normalisation.”
Institute for Democracy and Economic Affairs (IDEAS) economics and business research manager Lau Zheng Zhou affirmed that the situation is dependent on how soon the MCO is lifted and whether it will be done in phases.
“On one extreme, assuming MCO is lifted very soon on a nationwide basis, household spending could see a one-off sharp rebound, and it will then normalise to a long-term average.
“This is because demand has been suppressed by the MCO, and households may need to spend on products and services which are not considered non-essential. After spending one month working from home, some households could be even taking a short travel break!” he said.
According to a government update, 92% of workers opted for the lower EPF monthly contribution of 7% for April to December.
“If we also include various cash handouts, household consumption could be boosted even more when MCO is lifted,” said Lau.
However, if the MCO is prolonged, and depending on the economic situation, household consumption will grow more slowly, but could still be maintained given the high utilisation of credit cards and other short-term loans to smooth spending.
However, Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid is optimistic that there will be a rebound in household spending after MCO.
“But, it should occur gradually as social distancing measures are still in place. On top of that, there is a stigma over Covid-19 spread and infection. So Malaysians would be very vigilant whenever they go shopping.
“Perhaps, the numbers of trips and hours outside their house would still be very limited. But it will improve over time,” he said.
Mohd Afzanizam said those who have lost their jobs or have received pay cuts will continue to be careful in their spending. Their focus would be on the basic necessities such as food, house rent and utilities.
He noted that it is difficult to estimate when the economy will recover but the numbers of active cases and recoveries have been encouraging.
“So MCO and social distancing measures have yielded a positive outcome. Judging from the loan moratorium time horizon which is six months from April, we could probably see tangible improvement by the fourth quarter.” — April 24, 2020
