• Distributive trade grew by 7.0% yoy in May

• Motor vehicles dropped by -3.1% yoy

• Wholesale trade and retail trade grew by 7.8% yoy and 9.3% yoy respectively

• Stronger retail sales for key economies

• Higher sales growth expected in 2018

Distributive trade grew by 7.0% yoy in May, marginally lower than 7.5% rise in the previous month. However, the sales value climbed above RM100bn and stood at RM103.7bn in May, higher than RM96.9bn registered in the corresponding period of last year. The sales value comprises of wholesale trade (RM50.5bn), retail trade (RM40.9bn) and motor vehicles (RM12.3bn) businesses.

The stable growth in May was supported by wholesale trade (May: 7.8%; Apr: 7.6%) and retail trade (May: 9.3%; Apr: 7.9%). In contrast, motor vehicles dropped 3.1% yoy in May after registered a highest pace of growth, 6.3% in the last month.

On monthly basis, the distributive trade rebounded to 3.9% in May, after fell by 3.9% in April. The increase was supported by all businesses; wholesale trade (4.0%), retail trade (4.5%) and motor vehicles (1.8%).

Stronger retail sales for key economies

Looking at the retail trade of other countries, Indonesia’s retail sales grew 8.3% yoy in May, following a 4.1% rise in the previous month. It was the steepest increase in retail trade since December 2016. Retail sales in Singapore edged up marginally in May, with growth constrained partly by lower motor vehicle sales. May's retail takings were up 0.1% yoy, and excluding motor vehicles, the rise was more significant, at 2.2% yoy. US retail trade rose by 0.8% mom in May, following an upwardly revised 0.4% advance in April. It was the steepest increase in retail trade since November. On yearly basis, retail trade grew 5.9% in May, compared with a 4.8% rise in April. The Eurozone's retail trade rose 1.4% yoy, following a downwardly revised 1.6% growth in April. China's retail sales increased by 8.5% yoy in May, moderating from the 9.4% expansion registered in April. It was the weakest reading since June 2003, due to seasonal factors leading to delayed consumption. Meanwhile, annual growth in Japanese retail sales slowed in May to its lowest in seven months. The 0.6% yoy increase in retail sales in May was weaker than the revised 1.5% increase in April. May's result marked the slowest growth since a 0.2% decline last October.

Higher sales growth expected in 2018

Retail sales in Malaysia rose by 9.3% yoy in May, after a downwardly revised 7.9% gain in the prior month. It was the strongest growth in retail sales since January. We perceive the recent initiatives announced by the government, such as the zero rated GST, as being good for consumers. The abolishment of GST could also mean good news for manufacturers and retailers, with consumer spending intentions likely to rise, which could result in increased sales. Many retailers have been providing consumers with discounts even before the zerorated GST was officially implemented to encourage consumers not to postpone their festive spending to after 1 June. With these value-for-money promotions, we can expect to see an increase in sales volume compared to previous years.

The Malaysia Retailers Association (MRA) forecasts retail sales to be 5.3% for 2018, an improvement from the 4.7% growth in its March survey, boosted temporarily by the zero GST in June. According to the MRA, for 1Q18, the Malaysia retail industry recorded a belowthan-expected growth rate of 2.6% in retail sales versus the 3.1% in 4Q17. Retail sales are expected to recover by 2Q18 with an average growth rate of 6.0% has been projected, boosted by consumers’ confidence level and increase their willingness to spend. Meanwhile, the Retail Group Malaysia adjusted the 2Q18 retail growth rate from 3.7% to 6.3%. The retail sale growth rate for 3Q18 has also been revised from 5.2% to 6.8%.

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. Major purchases are expected to have been made from June to August of this year as 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. For 2018, consumers are projected to enjoy a stronger rebound growth as the abolishment of GST is expected to spur consumer spending. Private consumption which accounted for more half of Malaysian economy will be the primary engine for growth this year due to the expected improvement in sentiments among the consumers amidst lower inflation rate.

Source: BIMB Securities Research - 13 Jul 2018