• Distributive trade sales moderated to 4.3% YoY in June

• Growth recorded in all sub-sectors

• Wholesale & Retail Trade increase 5.7% YoY and 1.2% QoQ in 2Q23

• Global retail sales disappoint but consumer spending resilient

• Resilient consumer spending shows underlying strength that seems to be rolling forward

Malaysia’s wholesale & retail trade recorded monthly sales value of RM138.5bn, increased 4.3% YoY in June, slower than the 6.6% growth in the previous month. The positive growth was contributed by all sub-sectors.

By sub-sectors, retail trade rose 5.8% YoY or RM3.2bn to register RM59.4bn. Growth was supported by retail sales in non-specialised stores which continued its upward trend to register 10.9% (May: 8.4%) or RM2.2bn to RM22.8bn. Other groups in this sub-sector also recorded positive growth namely retail sales of automotive fuel (Jun: 8.5%; May: 6.0%), retail sales of food, beverages & tobacco (Jun: 12.6%; May: 10.0%), and retail sales in stalls & market (Jun: 5.8%; May: 6.0%). Wholesale trade generated sales value of RM62.4bn in June with a growth of 3.1% YoY. This increase was attributed to wholesale of food, beverages & tobacco which rose RM0.9bn or 7.8% (May: 9.6%) to RM12.2 billion. This was followed by non-specialised wholesale trade (Jun: 11.4%; May: 11.6%), wholesale on a fee or contract basis (9.2%), wholesale of household goods (4.8%), and wholesale of agricultural raw materials & live animals (4.7%). Sales value of motor vehicles increased 3.4% or RM0.6bn to settle at RM16.7bn. The increase was attributed to maintenance & repair of motor vehicles and sale of motor vehicles parts & accessories with 20.0% and 18.3%, respectively.

On a monthly basis, sales value of wholesale & retail trade inched up 0.3% or RM0.5bn. This monthly growth was contributed by retail trade with an increase of RM0.6bn or 1.0%, followed by wholesale trade of 0.3% or RM0.2bn. On the other hand, motor vehicles declined -1.9%.

For quarterly performance, sales of wholesale & retail trade registered RM412.4bn in second quarter, grew 5.7% YoY (1Q23: 12.8%) and 1.2% QoQ (1Q23: 0.6%). The year-onyear increase was underpinned by retail trade sub-sector which expanded RM13.0bn or 7.8% to RM178.7bn. This was followed by wholesale trade which rose 3.6% or RM6.4bn to reach RM185.5bn. Motor vehicles sub-sector also grew with 6.2% or RM2.8bn to record RM48.3bn in 2Q23.

Global retail sales disappoint but consumer spending resilient

Global retail sales saw a modest increase in June 2023. However, consumers continued to show resilience by maintaining or increasing spending in some sectors, indicating a solid growth trajectory for the economy in the second quarter of the year. The latest retail sales data indicates that factors intended to curtail consumer spending power, such as reductions in pandemic savings, high inflation and higher borrowing costs, have not significantly impeded consumption. This resilience demonstrated by consumers suggests that the global central bank’s tightening measures have not gone too far at this point. Overall, the mixed global retail sales report painted a picture of consumer resilience, though slowing momentum in spending growth.

Retail sales in the US and UK increased as consumers remain willing to spend money when the opportunity presents itself but Eurozone retail sales fell in June as inflationary pressures started to weigh on consumer behaviour. Retail sales in the US continued to signal consumer spending remains resilient, with inflation falling to two-year lows in June. Retail sales in the US rose 0.2% MoM in June of 2023, following an upwardly revised 0.5% increase in May. On a year-on-year basis, retail sales in June grew by 1.5%. Despite the Federal Reserve’s implementation of 500bps worth of interest rate hikes since March 2022, consumer spending has remained robust. The tight labor market has continued to drive wage gains, and as inflation subsides, consumers’ purchasing power is gradually increasing. Retail sales in the UK rose by 0.7% from the previous month in June, picking up from a downwardly revised 0.1% MoM increase in the prior month. This was the third straight month of growth in retail trade and the steepest pace in the sequence. However, growth still fell on an annual basis, but at its slowest rate since the beginning of the Ukraine war as retail trade dropped by 1.0%, a 15th consecutive month of decline. While inflation at nearly 8% remains a challenge for many households, a fall in energy prices from July 1 gave consumers more disposable income. Given the resilience of the UK consumer, combined with softening inflation, the probability of a soft landing has returned to the table. Retail sales in the Eurozone went down 0.3% MoM in June, after a revised 0.6% rise in May. On a yearly basis, retail trade dropped 1.4%, following a 2.4% YoY decline in May. Eurozone retail sales is expected to continue to trend down over the rest of this year as high interest rates take an increasing toll on consumers.

In the Asian region, retail spending was mixed. Retail sales growth in China slowed sharply to 3.1% YoY in Jun (May: 12.7%) as the favourable base effect faded. This is the slowest monthly gain so far in 2023, with 1H23 retail sales at 8.2% YoY. However, retail sales rose sequentially for the sixth straight month, suggesting that the recovery in domestic consumption is still continuing albeit at a slower pace. Retail sales rose 0.23% MoM in Jun compared to 0.39% MoM in May. Retail sales in Japan grew 5.9% YoY in June, accelerating slightly from an upwardly revised 5.8% increase in May. This was the 16th consecutive month of expansion in retail trade as consumption continued to recover from the pandemic-induced slump. However, on a monthly basis, retail sales declined by 0.4% in June, reversing from an upwardly revised 1.4% gain in May. Singapore’s retail sales rose by 1.1% YoY in Jun, easing from 1.8% in May whilst on a seasonally adjusted sequential basis, retail sales fell for the second month in a row by -0.8% MoM from -0.2% in May. Excluding motor vehicle sales, the sequential change turned positive to 0.2% MoM from -0.4% in May and translated to a stronger increase of 2.5% YoY from 1.7% in May. Retail sales value also slipped below the SGD4.0bn mark to SGD3.8bn from SGD4.03bn in May.

Outlook

Growth in Malaysia's wholesale and retail trade sector moderated to 5.3% YoY in June. However, the growth rate of the retail trade sub-sector was stronger and grew 5.8% YoY and on monthly basis, retail trade returned to positive growth of 1.0%. This suggests a strong consumer spending and demand across most retail categories, due in part to strong job and wages gains resulting from the tight labor market. Reflecting a higher retail trade, performance in online retail sales recorded 1.5% YoY growth in June (May: -0.8%; Apr: 4.1%; Mar: 11.7%; Feb: 9.4%). For seasonally adjusted value, the index edged up 0.8% as against the previous month.

We continued to see improving tourism numbers as one of the key factors supporting retail sales growth in Jun. Malaysia recorded 4.5mn tourist arrivals in 1Q23 with most of them coming from ASEAN countries which indicates a positive development in the country’s tourism industry. Tourism Malaysia Director-General said that Malaysia is poised to surpass its international tourist arrival target for this year by achieving an arrival of at least 18.0mn visitors, exceeding the initial target of 16.1mn tourists. On the other hand, domestic tourism in Malaysia registered a surged after it recorded 48.6mn visitors for 1Q23 which rose by 33.7% YoY. As for domestic tourism expenditure for 1Q23, it recorded RM19.2bn which indicated 47.0% YoY rise and 4.6% QoQ increase.

The total passenger movements for 1H2023 for airports in Malaysia recorded 38.9mn passengers as international traffic gained ground supported by positive developments, while the domestic sector continued to lead traffic recovery momentum. The recommencement of 45 airlines and the commencement of 2 new airlines boosted total airlines seat capacity recovery to 75% at 50.5mn in 1H23 compared to 1H19 at 67.3mn. For June 2023, operations in Malaysia recorded close to 7mn passenger movements, increasing by 2.0% from the preceding month. International passenger movements in Malaysia for the first time recorded more than 3mn passengers at 3.2mn, which was also an increase by 7% when compared to May 2023. The traffic momentum for the domestic passenger movements continues to record above the 3mn marks since December 2022.

Meanwhile, domestic demand remained resilient, sustained by steady recovery in the labor market and easing inflation. With prices rising at a more manageable pace, consumers may feel more confident in their purchasing power, potentially bolstering retail sales. The gradual stabilization of consumer prices could provide a favorable backdrop for retailers to attract customers and drive economic growth. Growth in retail trade highlights the strength of consumer demand and the resilience of the retail industry in Malaysia.

Looking forward, the resiliency of the consumer will be tested in the coming months as headwinds from higher interest rates are likely to impair spending as Bank Negara’s interest rates increases are still filtering through the economy. The cumulative effect of the 125bps of tightening done since May 2022 is starting to have some effect on the interest sensitive components of consumer spending, albeit with a notable lag.

While the state of Malaysia’s economy is a bit murky, consumers are currently the path of least resistance to economic growth and are doing their part to keep the economy moving ahead. The economy is still healthy and as long as employment growth holds up, consumers will still be willing to spend. It is expected that the retail sector will continue to benefit from the ongoing revival of inbound tourism and local consumption demand, further bolstering its performance in the coming months.

Downside risks to retail sales include a more cautionary external environment and still elevated inflation pressures that may increasingly curb discretionary spending of households. The slower-than-expected return of inbound Chinese tourists remains a concern but may also become a potential uplift in 2H2023/early 2024 if we see significant influx of Chinese tourists and their related spending in the subsequent months.

Source: BIMB Securities Research - 10 Aug 2023