• Distributive trade increased 7.5% in February

• Wholesale trade and retail trade rose by 7.5% yoy and 9.2% yoy respectively

• Stable retail sales by major economies in February

• Distributive trade sales to remain on steady momentum

Distributive trade increased 7.5% yoy in February, lower than 8.0% rise in the previous month. The sales value posted at RM97.3bn in February 2018 as compared to RM90.5bn a year ago. The sales value comprises of wholesale trade (RM47.6bn), retail trade (RM39.2bn) and motor vehicles (RM10.5bn) businesses. The modest pace for the month was mainly due to the sluggish growth of broad based segment; wholesale trade (Feb: 7.5%; Jan: 7.9%), retail trade (Feb: 9.2%; Jan: 9.9%), and motor vehicles (Feb: 1.9%; Jan: 2.6%) businesses.

On monthly basis, the distributive trade dropped 3.7% in February, following a 0.2% decrease in the previous month. The contraction was pulled down by all segments; wholesale trade (-4.4%), retail trade (-1.1%) and motor vehicles (-9.8%). Retail trade (Jan: -0.2%) and motor vehicles (Jan: -3.4%) recorded two consecutive months of negative growth.

Stable retail sales by major economies in February

Malaysia’s retail sales remained robust in February by logging 9.2% yoy growth but decelerated further since November 2017. In contrast, Indonesia’s retail sales rebounded to 1.5% yoy in February from -1.8% yoy in the prior month. The increase was supported by sales of clothing.

Retail sales in the United States inched up to 4.0% yoy in February from 3.9% yoy rise in a month earlier. Eurozone’s retail sales rose by 1.8% in February, following a downwardly revised 1.5% growth in January. Likewise, retail sales in Japan increased slightly to 1.6% yoy in February after logging at 1.5% yoy in January. The rise was buttressed by the increase in sales for food & beverages and fuel as well as the rallied for fabrics, apparel and accessories. As for China, retail sales remained at 9.7% yoy for the first two months of 2018. The growth mainly due to the faster pace of sales for automobiles, building material, jewellery, personal care and home appliances.

Distributive trade sales to remain on steady momentum

Distributive trade rose by 7.5% yoy in Feb but the figure was slightly lower than previous month’s reading of 8.0% yoy. Still, we foresee distributive trade sales to remain on steady momentum, driven by improved consumer confidence whilst strengthening ringgit could increase purchasing power.

We expect domestic demand to continue being the anchor of growth, underpinned by private sector activity. While we acknowledge the positive impact from the stable job market conditions underpinned by low unemployment rate and income growth, our expected moderation in consumer spending growth to 6.5% this year from 7.0% last year take into account of BNM’s interest rate hike in January, and the normalisation of workers’ monthly contribution to EPF back to 11% of gross monthly salary this year after the option for lower contribution of 8.0% between Mar 2016 and Dec 2017. Income growth is likely to be supported by a robust export performance and continued government measures, such as the continuation of BR1M cash transfers, individual income tax reduction, and special payments to all civil servants and retirees. This underpins firmer consumer spending going forward, in our view. Positive labour market indicators as well as resilient lending growth by financial institutions to the household sector suggest that the momentum in consumer spending growth could be sustained.

Source: BIMB Securities Research - 13 Apr 2018