Growing consumer debt puts Malaysia’s economy at risk


Article from The Malaysian Insider dated 24 May 2013


KUALA LUMPUR, May 24 — Malaysia’s consumer debt is at 76.6 per cent of its GDP and some economists believe that the growing consumer credit — where each ringgit of growth nearly matches an extra ringgit of consumer debt — could rock the country’s economy, the Financial Times (FT) reported today.


The country’s household debt ratio is the highest in the region, the influential daily reported, citing Johanna Chua, an economist at Citigroup, who believed this makes the Southeast Asia’s third largest economy vulnerable, especially as lower-income households bear a greater share of the overall debt.


While consumer credit growth in neighbouring Thailand is seen to still be in the healthy zone, growing from 16.5 per cent of gross domestic product in 2007 to 25.3 per cent now, leaving plenty of room for a further rise, according to Chua, Malaysia’s credit debt levels are tricky.


Malaysia’s household indebtness, pushed mainly by credit card and personal debts, has steadily increased from 75.8 per cent in 2010 to 76.6 per cent in 2011, and to 80.5 per cent last year, prompting calls for vigilance from financial analysts in the region.


“One of the reasons is lifestyle ... they fall into the trap because of poor financial planning,” Mohamed Khalil Jamaldin, head of corporate communications from the Credit Counselling And Debt Management Agency (AKPK), told The Malaysian Insider in an interview last month.


The World Bank has also scaled back slightly its 2013 growth forecasts for developing East Asia and warned about possible over-heating in the region’s larger economies that could stoke inflation and asset bubbles.


“More significant than the growth of government debt has been the expansion in corporate and household debt... The sum of general government, non-financial corporate and household debt now exceeds 150 per cent of GDP in Malaysia, Thailand and China,” the World Bank was reported by news wire Reuters as saying last month.


According to FT, the most reassuring factor for Southeast Asia is that its economies are more self-sustaining and mutually supportive, pointing to the trade bloc formed among Malaysia, Thailand, the Philippines, Indonesia and Singapore.


Citing the International Monetary Fund, the paper reported that regional trade is more valuable to each country than trade with any other outside partner.


But FT reported concern among some economists over growing consumer credit is threatening to become a source of financial instability — especially if regional growth continues to slow; it noted that Thailand already reported slower economic growth this week.


“Emerging market countries have to try and keep their currencies relatively weak to remain competitive in the global economy but this means importing the ultra-loose credit standards of the west.


“This is driving consumer credit growth in Malaysia, Thailand and the Philippines — that will be a big concern if this situation carries on too long,” the daily cited an unnamed senior official at a regional sovereign wealth fund as saying.