• Distributive trade increased by 7.7% yoy in April

• Motor vehicles rebounded to 6.6% yoy

• Wholesale trade and retail trade grew by 7.7% yoy and 8.0% yoy respectively

• Retail sales see varying gains in April

• ‘Tax holiday’ to boost consumer spending

Distributive trade increased by 7.7% in April following a 6.5% rise in the preceding month. The sales value stood at RM99.9bn in April, higher than RM92.8bn registered in the corresponding period of last year. The sales value comprises of wholesale trade (RM48.6bn), retail trade (RM39.2bn) and motor vehicles (RM12.1bn) businesses. The faster rate of growth in April was supported by all segments; wholesale trade (Apr: 7.7%; Mar: 8.0%), retail trade (Apr: 8.0%; Mar: 8.6%), and motor vehicles (Apr: 6.6%; Mar: -4.6%). Nonetheless, retail trade showed a downtrend in the growth rate since November 2017 whilst motor vehicles recorded the highest pace of growth after 9.8% gain posted in July 2017.

On monthly basis, the distributive trade fell by 3.7% in April, after significantly rose by 6.8% in March. The decrease was dragged down by all businesses; wholesale trade (-4.0%), retail trade (-4.1%) and motor vehicles (-1.5%).

Retail sales see varying gains in April

Malaysia’s retail sales moderated to 8.0% yoy in April and continued to decelerate for sixth consecutive month. It was the slowest growth in retail sales since August 2016.

Looking at the retail trade of other countries, Indonesia’s retail sales went up 3.4% yoy in April of 2018, advancing from a 2.5% increase in the prior month. On a monthly basis, retail sales increased 2.8%, following a gain of 4.5% in March. Retail sales in the United States came in at 0.2% mom in April while the reading for March is revised higher to 0.8% from 0.6%. Year-on-year, retail trade grew 4.6% in April, compared with a 5.1% rise in March. The robust US retail sales number bodes well for a stronger US economic growth in 2Q but spooked investors that the Fed may hikes 3 more times in 2018, sending UST yields soaring and the USD higher. The Eurozone's retail trade increased 1.7% yoy in April 2018, following an upwardly revised 1.5% rise in March. Retail sales in Japan rose by 1.6% yoy in April, after a 1.0% gain in the previous month. On a monthly basis, retail sales climbed 1.4% after declining 0.6% in the previous month. Meanwhile, China’s retail sales grew 9.4% yoy in April, moderating from the 10.1% expansion registered in March and marking the weakest growth in four months.

‘Tax holiday’ to boost consumer spending

Distributive sales growth in the first four months of 2018 moderated to 7.4% compared to 8.8% recorded in 2017. However, since Malaysians will now enjoy a tax holiday, as the GST’s replacement - the Sales and Services Tax (SST) - will only be reintroduced on September 1, we expect that there will be a significant boost in consumer spending and consumer optimism, as well as business profits. Consumers’ purchasing power is expected to improve after the GST is zero-rated, leading to a significant multiplier effect within the domestic economy.

With no tax being paid on the goods and services in the three-month period, we are likely to see more spending power among the consumers. Consumers stand to gain the most and this might translate to more spending. We believe that people may take the advantage to buy cars following the price reduction of cars on the zero-rated GST as the prices of cars might increase marginally after the return of the SST. Even with the introduction of SST in September, Malaysians’ purchasing power is unlikely to be affected significantly. However, it will be contingent upon the government’s mechanism to implement SST, which is yet to be announced. A single-level tax will lessen the burden on consumers and boost spending power, although the government may be on the losing end by forgoing the 6% GST revenue. Once the new SST is implemented, there are some goods that will be more expensive compared to when it was subjected to GST, but this depends on the rate of SST, whether or not it will burden the consumers. Still, we believe that the government would find the right way to balance between revenue generating for the national coffers and to reduce the impact on consumers.

Source: BIMB Securities Research - 13 Jun 2018