Purchasing power of Malaysian households to rise 18% above pre-Covid levels

 BMI Research says easing inflation and real wage growth will support consumer spending, although high household debt remains a risk.

BMI Country Risk & Industry Research said the tight labour market and easing inflation are raising wages in real terms, which has filtered through into the disposable incomes of Malaysian households.

PETALING JAYA:

An international research house says Malaysian households are expected to enjoy purchasing power 18% higher than pre-Covid levels in 2019 by 2026, driven by rising real wages and easing inflation.

In a research note today, BMI Country Risk & Industry Research (BMI), a unit of Fitch Solutions, said the improvement in purchasing power would support stronger consumer spending and retail sector growth this year.

“The tight labour market and easing inflation are raising wages in real terms, which has filtered through into the disposable incomes of Malaysian households,” it said in its latest Malaysia Consumer Outlook report.

BMI said average household earnings were expected to grow by 2.8% annually in real terms after accounting for medium-term inflation averaging 2.1% up to 2030.

The research firm forecast household spending to grow by 4.2% year-on-year in real terms in 2026, reaching RM1.10 trillion, before expanding another 4.1% in 2027 to RM1.14 trillion.

It attributed the positive outlook to stable economic growth, manageable inflation and a resilient labour market.

Malaysia’s inflation is expected to average 1.9% in 2026, while unemployment is forecast to remain at 3.1% of the labour force, supported by foreign investments, tourism recovery and activity in key sectors such as manufacturing and electronics.

BMI also noted that retail sales remained strong, with year-on-year growth reaching 7.2% in May 2026.

However, it cautioned that high household debt remained a key risk to consumer spending.

“High levels of household debt not only constrain future borrowing capacity but also impact current disposable income levels,” it said.

Bank Negara Malaysia’s latest estimate showed household debt at 69.8% of gross domestic product (GDP) in the fourth quarter of 2025.

BMI said the central bank’s decision to maintain the overnight policy rate at 2.75% would help keep debt servicing costs stable and support household spending.

The firm also expects the ringgit to strengthen slightly against the US dollar, from RM4.30 in 2025 to RM4.10 in 2026, which will benefit consumers through cheaper imported goods.

BMI forecast Malaysia’s real GDP growth to average 4.3% in 2026 and 4% in 2027. - FMT