Despite an otherwise positive economic outlook, high household debt remains a significant drag on Malaysia's consumer spending, according to a new report from BMI (Fitch Solutions). Household debt reached 69.5% of GDP in Q4 2024, a slight increase from the previous quarter.

BMI warns that elevated debt servicing costs are eroding disposable income, even with the central bank beginning to ease monetary policy. This has led to a significant weakening in consumer confidence, with the Malaysian Institute of Economic Research recording an average of 87.1 in Q1 2024, one of the lowest readings since Q2 2022.

Inflation, Global Risks, and Outlook

Retail sales growth has softened, and inflationary pressures on essential commodities like food and fuel continue to disproportionately affect low- and middle-income households. The report also highlights that debt servicing costs could rise if inflation accelerates, potentially forcing interest rate hikes.

Malaysian consumers are also exposed to global economic risks, including supply chain disruptions, trade tensions, geopolitical conflicts, and the potential for a deep US recession, all of which could impact purchasing power.

Despite these challenges, BMI maintains its forecast for consumer spending growth of 3.8% in 2025 and 5.0% in 2026, primarily supported by wage gains and ongoing monetary easing.