KUALA LUMPUR (Feb 2): Malaysia is expected to record an even more pronounced slowdown in private consumption to 3.7% this year, from 5.6% in 2016, said HSBC Global Research.

“Wage growth has been losing steam, and labour market softness has been increasingly evident. We see this too in Thailand and Singapore, though their unemployment rates remain among the lowest in Asean,” HSBC economist Lim Su Sian wrote in the bank’s latest Asean Perspectives report today.

According to Bank Negara Malaysia data, private consumption grew by 6.4% in the third quarter of 2016, supported by continued wage, employment growth, and the increase in minimum wage which took effect in July last year.

The central bank had also projected government measures to increase disposable income will be an additional impetus that will support private consumption growth.

On Malaysia’s unemployment rate, Lim said it has crept gradually over the last two years, rising to a multi-year high of 3.6% as at end-November 2016.

This was slightly higher than the medium-term average of 3.1% recorded between 2010 and 2015.

“Potentially, cash hand-outs for current and retired civil servants in January, and a possible snap election in the first half 2017, could lift consumption temporarily,” said Lim.

Lim also identified the “soggy” ring and Malaysia’s large debt overhang as two factors that will likely continue to depress the country’s consumer confidence level.

“Although borrowing momentum has slowed, Malaysian households will still have to work through paying off debt equivalent to nearly 90% of the gross domestic products (GDP) — the highest not just in Asean, but also in Asia,” Lim said, drawing comparison to other neighbouring countries — Singapore and Thailand — where household debt are standing at “not that much lower either, at an elevated 75% to 80% of GDP.”

Meanwhile, Lim said Malaysia and Thailand are the two countries that will likely “cause some drag on the regional domestic demand outlook.”

This is coupled with the fact that the Asean’s Purchasing Managers' Index (PMI) — an indicator of the economic health of the manufacturing sector — continued to point “to generally soggy manufacturing conditions”.

“The decline in [the] manufacturing sector activity persisted in Malaysia, with the PMI remaining at a low,” Lim added.

As for the monetary policy, Lim noted that Bank Negara’s decision to not cut the overnight policy rate and leaving it unchanged at 3% in January, “sounded somewhat more upbeat on the global outlook.”

“A cut of the banking sector’s reserve requirement ratios remain a possibility, as central banks look to boost bank lending and shore up growth,” Lim added.