29-07-2025
BMI: High household debt putting a damper on Malaysian consumer spending
KUALA LUMPUR, July 29 — High household debt levels remain a significant constraint on Malaysia's consumer spending despite an otherwise positive economic outlook, according to a new BMI report.
According to the Fitch Solutions firm, household debt reached 69.5 per cent of GDP in the fourth quarter of 2024, up slightly from 69.3 per cent in the previous quarter, based on Bank Negara Malaysia data.
'A high level of household debt remains a risk to our consumer outlook, as it not only
constrains future borrowing capacity but impacts current disposable income levels,' BMI said in the report.
High debt servicing costs are eating into household spending power even as the central bank begins to ease monetary policy, BMI analysts warned.
Consumer confidence has weakened significantly, with the Malaysian Institute of Economic Research recording an average of 87.1 in the first quarter of 2024, down from 89.4 in the fourth quarter of 2023.
This represents one of the lowest consumer confidence readings since the second quarter of 2022, when it reached 85.9, compared to a long-term average of 96.5 between 2005 and 2023, the report noted.
Retail sales growth has shown signs of softening, coming in at 4.9 per cent year-on-year in May 2025, up from 4.7 per cent in April but marking a notable decline from earlier in the year.
Inflationary pressures in essential commodities such as food and fuel continue to weigh particularly heavily on low- and middle-income households, BMI said.
People walk in a shopping mall in Kuala Lumpur on August 7, 2024. — Picture by Firdaus Latif
Food price inflation, while moderating to 2.1 per cent in June 2025 from an average of 2.5 per cent in the fourth quarter of 2024, remains a key risk factor for consumer spending.
The research firm noted that debt servicing costs could rise again if inflationary pressures accelerate and force the central bank to return to interest rate hikes.
Malaysian consumers remain exposed to global economic risks including supply chain disruptions, trade tensions, and geopolitical conflicts that could impact purchasing power.
Rising political risks associated with inflation and debt servicing costs could complicate policymaking and further strain the consumer sector, analysts warned.
Global supply chain disruptions due to conflicts and longer shipping routes are leading to higher prices and product availability issues that force consumers toward more expensive alternatives.
Trade barriers and retaliatory measures, particularly involving China, Europe, and the US, are expected to inflate costs and strain supply chains further.
A potential deep recession in the US could spread to other economies and significantly impact global consumer markets, including Malaysia, BMI cautioned.
Despite these challenges, the firm maintained its forecast for consumer spending growth of 3.8 per cent in 2025 and 5.0 per cent in 2026, supported by wage gains and monetary easing.
