Malaysian households now 18pc better off than before Covid — but debt clouds the horizon

Malaysian households now 18pc better off than before Covid — but debt clouds the horizon



A customer presents their MyKad to purchase essentials using the MySara aid before the expiry date closes in at Segi Supermarket Saujana Utama in Sungai Buloh, Selangor on December 8, 2025. — Picture by Sayuti Zainudin

First Published: Thursday, 16 Jul 2026 10:01 AM MYT


KUALA LUMPUR, July 16 — The average Malaysian household now has 18 per cent more purchasing power than it did in 2019, according to a new consumer outlook report from BMI, a Fitch Solutions company.

The findings suggest that while economists remain wary of high debt, the typical Malaysian’s money is finally stretching further.



The shift is captured in BMI’s real purchasing power index, which measures how far wages actually go once inflation is stripped away. This upward trend is expected to persist through 2030, fuelled by a tight labour market that is pushing real wage growth ahead of rising prices.

Three key pillars are driving this recovery: low inflation, a stable job market, and a central bank that has paused interest rate hikes.


Inflation is expected to hover around 1.9 per cent in 2026. This return to pre-pandemic norms is supported largely by the government’s price cap on RON95 petrol. Food inflation, which consumes 27 per cent of typical household spending, remains contained at 1.4 per cent. For many families, this means less stress at the grocery till and more room to afford bigger ticket items.


The job market remains a stronghold. Unemployment stood at 3.0 per cent in May 2026. While this is the highest level since October 2025, it remains low by historical standards. BMI’s Country Risk team expects unemployment to average 3.1 per cent through 2027, bolstered by steady growth in tourism, agribusiness, electronics, and manufacturing.

Borrowing costs have also found a plateau. Bank Negara Malaysia (BNM) held its benchmark interest rate at 2.75 per cent in July 2026, defying earlier predictions of a cut. BNM described this stance as “appropriate and supportive.” BMI interprets this as a signal that rates will likely hold steady for the rest of the year. While this offers no new relief for existing borrowers, it provides a critical safety net for those fearing a spike in monthly loan repayments.


This surge in disposable income is translating into direct spending. BMI forecasts that real household spending will grow 4.2 per cent in 2026 to reach RM1.10 trillion, followed by another 4.1 per cent jump to RM1.14 trillion in 2027. Both figures comfortably eclipse the 2019 pre-pandemic level of RM779.7 billion. Real retail sales, which grew 7.2 per cent year on year in May 2026, further confirm this consumer resilience.

A strengthening ringgit is providing an additional boost. BMI expects the currency to firm from RM4.30 to RM4.10 against the US dollar in 2026. Given Malaysia’s heavy reliance on imports, a stronger ringgit should lower the cost of imported goods for the average consumer.

Growing debt trap

Despite the optimism, a significant risk looms. Household debt stood at 69.8 per cent of GDP as of late 2025, a level BMI describes as a “credit boom.” This creates a fragile equilibrium. If interest rates were to rise unexpectedly, families would be forced to divert more income toward loan repayments, quickly erasing the purchasing power gains currently driving the economy.

Malaysia also remains vulnerable to external shocks. Tensions between the US and Iran could disrupt the Strait of Hormuz, potentially spiking fuel and energy costs. Similarly, renewed global trade wars, including US tariffs on China, India, and Europe, could drive up the price of imported essentials. Any aggressive move by major global central banks to keep interest rates high could also indirectly pressure Malaysian borrowing costs.

For now, the wind is at the back of the Malaysian consumer. A combination of capped petrol prices, steady employment, and a rate pause has created a window of financial breathing room. However, with debt levels at a peak and global volatility simmering, these gains remain contingent on a stable environment both at home and abroad.