Consumer confidence to recover over the coming quarters: HLIB

KUALA LUMPUR: Hong Leong Investment Bank (HLIB) predicts consumer confidence will rebound in the upcoming quarters following a decline in domestic pressures affecting household confidence, according to a recent report. The Malaysian Consumer Confidence Index (MYCI) dropped 9% quarter-over-quarter to 123 points in the second quarter of 2026, its lowest level since the fourth quarter of 2022, as major purchase intentions suffered.

However, the economy grew by 6% year-over-year (YoY) during the same period, while private consumption increased by 4.8%. Retail trade expanded by 6.4% in July. HLIB attributes the confidence decline to a shift in spending mix rather than a drop in spending levels, as e-wallet usage for groceries and convenience stores remained stable while discretionary categories like food delivery, hotels, and flights faced a decline.

The bank anticipates sentiment to improve as domestic pressures ease, with the April Budi Madani RON95 quota reduction lifted from September 1 and headline inflation remaining below the 2.0% peak observed in May, largely absorbed by the fiscal balance rather than households. The sole remaining trigger is the Iran war, but its impact is primarily borne by the fiscal balance due to the RON95 price being capped at RM1.99 per litre.

HLIB notes that the MYCI does not directly represent actual spending, citing the MYCI's value at 141 in Q4 calendar year 2024 compared to a YoY retail trade growth average of 6.1% in Q4 CY24 versus 6.7% in Q2 CY26 when the index was 18 points lower. The bank points to a precedent where MYCI fell 12% to 124 by Q2 CY25 due to US tariff announcements and an expanded sales and services tax but rebounded 9.7% to 136 the following quarter, coinciding with the RM100 Sumbangan Asas Rahmah (Sara) credit.

With fuel quota restored and a possible Sara credit under the 2027 budget, HLIB expects consumer sentiment to recover in the coming quarters. Additionally, the bank anticipates a minimum wage revision in the 2027 budget, as the current RM1,700 rate, effective since February 2025, requires a review at least every two years. Based on previous increments of RM100 to RM300, HLIB expects the minimum wage to rise to RM1,900 to RM2,000 a month in 2027, benefiting retailers like 99 Speed Mart Retail Holdings Bhd and Mr DIY Group (M) Bhd, where the propensity to consume is highest.