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Consumerism to recover in 2021, but negative factors remain

The loosening of MCO restrictions, gradual rolling out of vaccines and reopening of the economy is expected to result in modest return to normalcy and hence moderate recovery in consumption behaviour. — Bernama photo

KUCHING: With the loosening of movement control order (MCO) restrictions, gradual rolling out of Covid-19 vaccines, and reopening of the economy, analysts expect a modest return to normalcy for the consumer sector and hence moderate recovery in 2021.

However, they also cautioned that while consumer spending could improve in 2021, negative factors such as high unemployment levels still remain as barriers to the sector.

“The loosening of MCO restrictions, gradual rolling out of vaccines and reopening of the economy is expected to result in modest return to normalcy and hence moderate recovery in consumption behaviour.

“As such, we upgrade the consumer sector from underweight to neutral,” the research team at Hong Leong Investment Bank Bhd (HLIB Research) said in a recent report on its outlook of the consumer sector in 2021.

Based on data from the Department of Statistics Malaysia (DOSM), retail spending bottomed in April 2020 at the peak of MCO restrictions.

“Going into 2021, we expect retail spending to be positive y-o-y due to low base effect in 2020.

“However, negative factors remain, namely chronically high unemployment levels — even higher than that seen during the Global Financial Crisis,” it opined. “This translates to continued downward pressure on disposable incomes, and sustained sluggish foot traffic in retail areas such as shopping malls from anxiety surrounding Covid-19.

“While we note that recent vaccine news is positive for overall sentiment, HLIB’s internal estimates reckon the roll out will take time, with only circa 20 per cent of the population expected to be vaccinated by end-2021,” it opined.

Along with the recovery in global consumption, HLIB Research noted that many key commodities prices of consumer staples under its coverage have begun to recover between 20 to 35 per cent since mid-FY20 lows.

“Despite strong rebound in many key commodity prices which is expected to remain going into 2021, we reckon the higher raw material costs will be mitigated by stronger ringgit, better revenues from hotels, restaurants and cafe channels gradually returning to regular operations.”

Meanwhile, on the tobacco sector, the sub remained reliant on government clamp downs.

“To recap, the government had announced measures in Budget 2021 (tightening the renewal of cigarette import licenses, limiting transhipments of cigarettes at certain ports, imposition of tax on the importation of cigarettes with drawback facilities etc) aimed at curbing the rampant illicit tobacco trade that has come to account for the bulk of tobacco volumes.

“Our channel checks estimate that 30 to 40 per cent of illicit cigarettes are imported via transhipments. “While effective clamp down on this channel could drive volumes back to the legal market, we understand this process will take time to bear fruit,” it said.

 






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