• Distributive trade sales grew 7.2% YoY in July

• Growth recorded in all sub-sectors

• 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 sales value of RM139.8bn, increased 7.2% YoY in July, higher than the 4.3% growth in the previous month. The positive growth was contributed by all sub-sectors.

By sub-sectors, retail trade expanded 5.5% YoY or RM3.1bn to RM59.7bn. Growth was supported by retail sales in non-specialised stores which grew 9.0% (Jun: 10.9%) or RM1.9bn to RM22.7bn. Other groups in this sub-sector also recorded positive growth namely retail sale of food, beverages & tobacco in specialised stores (Jul: 12.5%; Jun: 12.6%), and retail sale via stalls & markets (Jul: 5.7%; Jun: 5.8%). Wholesale trade generated sales value of RM63.1bn in July with a growth of 5.7% YoY. This increase was attributed to wholesale on a fee or contract basis (Jul: 10.5%; Jun: 9.2%), non-specialised wholesale trade (Jul: 10.3% Jun: 11.4%), wholesale of food, beverages & tobacco (Jul: 8.8%; Jun: 7.8%) and other specialised wholesale (5.8%). Sales value of motor vehicles increased 20.5% or RM2.9bn to settle at RM17.0bn. The increase was fuelled by sales of motor vehicles which accelerated 25.9% (Jun: -3.8%) or RM1.8bn to record RM8.8bn. This was followed by sales of motor vehicles parts & accessories (Jul: 17.3%; Jun: 18.3%). Vehicle sales data for the month of July saw a total of 63,676 units delivered to customers, an increase of around 1.7% MoM from the 62,593 units sold in June. The July sales total is also 27.5% YoY higher that saw 49,934 deliveries in July 2022. The encouraging results are a result of improved supply chains as well as fulfilment of bookings for new model launches recently.

On a monthly basis, sales value of wholesale & retail trade increased 0.9% or RM1.3bn. This monthly growth was contributed by wholesale trade with an increase of 1.1% or RM0.7bn. Within the same period, motor vehicles rebounded 2.0% or RM0.3bn, while retail trade rose 0.5% or RM0.3bn as compared to last month.

Global retail sales disappoint but consumer spending resilient

Global retail sales saw a modest increase in July after a slower growth in June, a result that should not upset the outlook for interest rates as high borrowing costs work to slow consumer spending. While there was a rise in July, underlying growth in retail turnover remained subdued and the sluggish trend in consumer spending is a major reason that most central banks had paused rate hikes. Progress has been made on combating inflation, but higher prices remain. While consumers are still spending, the composition of their spending continues to favour services over retail goods and even then, there was less momentum going into the third quarter.

Retail sales in the US increased in July, underscoring their resilience despite the Federal Reserve's aggressive interest rate hikes to tame inflation but retail sales in the UK and Eurozone fell as consumption has been sluggish as real incomes fall and households are now spending a larger part of their incomes on expensive energy and on credit and mortgage repayments, eroding demand for other goods. Retail sales in the US were up 0.7% MoM in July, marking a fourth consecutive rise, following an upwardly revised 0.3% gain in June, in another sign consumer spending remains strong despite high prices and borrowing costs. Retail sales increased 3.2% YoY in July. Retail sales in the United Kingdom dropped by 1.2% MoM in July, after a downwardly revised 0.6% growth in June. It was the first contraction in retail trade since March as sales declined for both food and non-food, reflecting the impact of wet weather and cost pressures. On a yearly basis, retail trade shrank by 3.2%, a 16th consecutive month of decline, the steepest decline in three months. Retail sales in the Eurozone decreased by 0.2% MoM in July. On a yearly basis, retail sales were down by 1.0%, marking the tenth consecutive month of contraction

In the Asian region, retail spending was mixed. Retail sales growth in China was a big letdown in July as growth slowed to 2.5% YoY (Jun: 3.1%), a fresh low this year as the economic recovery faltered and the labour market has started to weaken. In Jan-Jul, retail sales rose 7.3% YoY, mainly due to the initial pent-up demand after borders reopened and the low base of comparison last year. The sequential growth in the six preceding months also reversed to a -0.06% MoM contraction in Jul (Jun: +0.24% MoM). On the other hand, Retail sales in Japan rose 6.8% YoY in July, accelerating from a downwardly revised 5.6% gain in June. This was the 17th consecutive month of expansion in retail trade as consumption continued to recover from the pandemic-induced slump. Singapore’s retail sales increased 1.1% YoY in July; a tad higher than Jun’s revised reading of 1.0%. Excluding motor vehicle sales, retail sales fell by 1.1% MoM (Jun: 0.1% MoM), translating to a milder annual print of 0.4% (Jun: 2.3% YoY). In nominal terms, the value of retail sales rose to SGD3.94bn from SGD3.84bn in Jun. Retail sales in Indonesia rose by 1.6% YoY, slowing sharply from the steepest increase in over a year of 7.9% in June while pointing to the second straight month of growth. However, on a monthly basis, retail sales plunged by 8.8% in July, the steepest decline since June 2022, after a 0.3% drop in June.

Outlook

The wholesale and retail trade sector experienced significant growth, with a growth rate of 7.2% YoY in July, a substantial increase compared to 4.3% in June. The retail sales increased by 5.5% YoY in July (June: 5.8% YoY) and compared with June 2023, the retail sales increased by 0.5% MoM.

Reflecting a sustained retail trade, performance in online retail sales recorded 0.4% YoY growth in July (Jun: 1.5%; May: -0.8%; Apr: 4.1%; Mar: 11.7%; Feb: 9.4%). For seasonally adjusted value, the index went up 0.7% as against the previous month.

Ongoing recovery in the tourism sector remains a key factor supporting retail sales growth in July and for the rest of the year. Malaysia recorded 4.5mn tourist arrivals in 1Q23 and is poised to surpass its international tourist arrival target for this year by achieving an arrival of at least 18mn visitors, exceeding the initial target of 16.1mn tourists. The total passenger movements in Malaysia’s airports recorded a new high in passenger movements in July with 7.4mn passenger movements. For July 2023, international passenger movements in Malaysia increased by almost 10% to 3.5mn passengers from 3.2mn passengers in the preceding month. Domestic passenger movements recorded 3.9mn passengers, which was a 2% increase from 3.8mn passengers in June 2023.

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. Growth in retail trade highlights the strength of consumer demand and the resilience of the retail industry in Malaysia. 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 in 2H23 include a more cautionary external environment, easing in labor market conditions - slowing wage growth; uptick in unemployment and underemployment rates; weaker hiring sentiment across sectors - and a slower than expected return of inbound Chinese tourists.

Source: BIMB Securities Research - 12 Sept 2023