Malaysia private consumption likely to slow on softness in labor market

Private consumption in Malaysia is likely to slow down in the upcoming quarters owing to a softness in the labor market, with unemployment mounting pressure on the economy.

This remains a key domestic engine which showed solid growth of 5.3 percent y/y in the first quarter, up from 4.9 percent in the previous quarter. And this is despite a high base in the same period last year where there has been a pre-GST spike in private consumption (9 percent y/y).

"While the introduction of the GST has weighed down on private consumption previously, the effect has faded and one should rightfully assume an improvement in this growth component going forward," DBS reported.

Private consumption growth is expected to slow down on a dwindling labor market that is witnessing some softness in terms of unemployment. The unemployment rate is grinding higher while job vacancies in the labor market are declining.

The headline unemployment rate has risen to 3.4 percent on a seasonally adjusted basis in the first quarter of 16, the highest level in six years. If the employment prospects continue to dim, consumers will definitely suffer from tight purchasing power, which implies that the impetus from private consumption is likely to fade away.