KUALA LUMPUR (Nov 13): While more states have been placed under the conditional movement control order (CMCO), Bank Negara Malaysia is expecting a sustained recovery in private consumption.
Private consumption has recovered significantly as it registered a smaller drop of 2.1% in the third quarter of this year (3Q20), compared with 18.5% in 2Q20.
“For consumer spending, it is important for us to turn to its fundamental driver which is income growth. As domestic economic activities resume and external demand picks up, broad income conditions should also improve gradually and support spending,” said Bank Negara Malaysia Governor Datuk Nor Shamsiah Mohd Yunus at the 3Q gross domestic product (GDP) virtual press conference today.
Beyond income, she said policy assistance also continues to lift private consumption.
Some of the key Covid-19 stimulus measures to help sustain consumer spending going forward are EPF i-Lestari withdrawals, Bantuan Prihatin Nasional 2.0 (BPN 2.0), wage subsidies and recent budget measures such as Bantuan Prihatin Rakyat (BPR) and various tax relief, she noted.
“We should not forget that Covid-19 is a health crisis. Effective health measures to tackle the pandemic remain crucial to sustain the recovery in consumer spending,” said Nor Shamsiah.
In this context, she said the greater familiarity in handling the Covid-19 cases and the collective effort in adhering to the SOPs to contain the spread of the virus could help anchor consumer confidence.
Additionally, Nor Shamsiah highlighted that consumer spending has not been affected as much in the current CMCO compared to the MCO in 2Q20, adding that the impact of the recent CMCOs on 2020 GDP is about half of the impact of the MCO in 2Q20.
Physical debit card spending has increased by 26.8% during the CMCO (Oct 14 to Nov 10), from the spending in the period of Jan 3 to Feb 6, 2020. Likewise, online spending also grew by 34.5% during the CMCO period.
Nor Shamsiah attributed the higher spending to an increase in merchants using cashless terminals, use of cashless spending and recovery in consumer spending, given the improvement in labour market conditions.
Private investments to rebound next year
Private investment growth is expected to rebound next year, supported mainly by increasing global and domestic demand and the continued progress in large investment projects and stimulus measures, said Nor Shamsiah.
The contraction in private investments also narrowed to 9.3% in 3Q20 against 26.4% in 2Q20.
“Following the relaxation to operating restrictions, construction activities have picked up. So, we expect the ongoing large infrastructure projects in particular will provide support to growth going forward,” said the bank governor.
She noted that private investments growth will also be lifted by continuous stimulus measures from the short-term economic Recovery Plan (PENJANA) and Budget 2021, which includes investment incentives, tax allowances and implementation of various projects, including the National Digital Network (Jendela) that aims to improve digital connectivity in Malaysia and build the foundation of the adoption of 5G technology.
Approved investments, particularly in the manufacturing sector, remains high, said Nor Shamsiah. In the first three quarters of this year, about RM65 billion worth of projects were approved, driven by the petroleum products, including petrochemicals, metal products and electrical and electronic (E&E) industries.
She pointed out that the realisation of these approved investments next year will also provide support to growth next year.
“Attracting quality investments will be key in driving a more sustainable economic recovery and achieving our aspiration to be a high-income nation,” she added.
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