KUALA LUMPUR - Reports of a Hermes store in China's affluent Guangzhou raking in US$2.7 million (S$3.9 million) on its reopening day last Saturday (April 11) have gone viral, fuelling hope that "revenge spending" to release pent-up demand will also occur in Malaysia once its own restrictions to curb the coronavirus outbreak are lifted and the economy breathes again.
Visions of disposable incomes being hoarded only to be immediately spent upon first opportunity were first sparked last week.
The Statistics Department (DOSM) reported then that Malaysians cut spending by more than half during the ongoing movement control order (MCO), with reductions increasing in sync with income levels.
After deducting non-consumption spending - such as direct taxes, savings and loans - the average drop in spending is still 48 per cent, with the richest 20 per cent cutting down expenses by 59 per cent.
"The above findings suggest the most likely source of pent-up - or "revenge" - spending post-MCO will be the T20 (top 20 per cent) households," Maybank IB Research said.
This would bode well for private consumption, which makes up nearly 60 per cent of Malaysia's RM1.5 trillion (S$490 billion) economy.
But wage cuts, expected drop of investment incomes and record job losses have impacted the finances of more than nine-tenths of private sector workers during the MCO, according to a separate DOSM survey.
Incomes will be further impacted with the government extending twice - for a fortnight each time - the initial two-week order which forced non-essential activities into stasis. With new infections still averaging more than 100 daily, it could well push the curbs beyond the current April 28 mark.
The expenditure study also shows that more than half of the cuts are not on items that have pent-up demand, such as transport, housing and utilities - since people will not be travelling or using electricity and water aimlessly nor paying more rent post-MCO. And while there is an 86 per cent drop in spending on restaurants and hotels, much of this is offset by food purchases at home, which is set to slow once people can eat out again.
This leaves the official expectation that GDP could still grow this year on the back of a 4.2 per cent jump in private consumption looking overly optimistic. Central bank governor Nor Shamsiah Yunos refused to confirm a recession earlier this month, after announcing a projection of -2.0 to 0.5 per cent economic growth.
"We expect growth to gradually improve in the second half as the impact (of the coronavirus outbreak) begins to dissipate," she said, pointing to stimulus measures estimated to add 2.8 per cent to GDP and pent-up demand.
But some analysts are sceptical that private consumption can bounce back when restrictions are lifted.
"The shutdown will have pretty persistent effects," Barclays regional economist Brian Tan told The Straits Times, citing tourism - which provides nearly a quarter of all employment and a value add of over 15 per cent of GDP - as an example of a sector "that's very difficult to come back" from the fallout of a global pandemic as international travel bans will only ease gradually.
Malaysia's retailers association is now predicting the sector will suffer negative growth for the first time since the Asian Financial Crisis in 1998 when a fifth of the industry evaporated. The Retail Group Malaysia believes retail sales will shrink by 18.8 and 9.3 per cent in the first two quarters of the year and level out to a full-year drop of 5.5 per cent compared to 2019.
It also noted "the fear of the virus pandemic had affected consumers' spending during the first two weeks of March 2020" even before the MCO came into place on March 18. This indicates it will not be business as usual when curbs are lifted.
"Even if the MCO is lifted, the continued practices of safe distancing and (limiting) gatherings are likely to be in place for a while longer. Hence, discretionary consumer spending will be somewhat restrained," Socio-Economic Research Centre (SERC) executive director Lee Heng Guie was reported as saying in local daily The Star. "Another concern is that some households may save and restrain spending more for a while until they feel secure with their jobs and income."
More sanguine voices, such as Ambank Research, believe there will be "a positive lift to private consumption" after the MCO but only enough to see a 2.0 to 2.5 per cent bump and not the levels expected by Bank Negara.
