• Distributive trade sales grew 6.5% YoY in September

• All sub-sectors recorded positive growth

• Broader cost of living pressures global retail performance

• Resilient consumer demand will be the key driver to growth

Malaysia’s wholesale & retail trade recorded sales value of RM142.7bn, increased 6.5% YoY in September. Growth was across the board.

By sub-sectors, retail trade registered a growth of 5.9% YoY or RM3.4bn to reached a record high of RM61.1bn. Growth was supported by retail sales in non-specialised stores which grew 8.9% or RM1.9bn to RM23.2bn. Other groups in this sub-sector also recorded positive growth namely were retail sale of food, beverages & tobacco in specialised stores (Sep: 13.4%) and retail sales in specialised stores (Sep: 5.5%). Wholesale trade sub-sector rose 6.9% YoY or RM4.1bn to register RM64.2bn. This increase was contributed by other specialised wholesale which rose RM2.0bn or 8.6% to RM25.1bn. This was followed by wholesale of agricultural raw materials & live animals (9.9%), other specialised wholesale (8.6%) and wholesale of food, beverages & tobacco (7.7%). Sales value of motor vehicles increase 7.0% YoY or RM1.1bn to settle at RM17.5bn. The increased was fuelled by sales of motor vehicles parts & accessories which accelerated 17.2% or RM0.7bn to record RM4.6bn. This was followed by maintenance & repair of motor vehicles (18.6%) and sales of motor vehicles (3.8%).

On a monthly basis, sales value of wholesale & retail trade expanded for the fifth straight month albeit at the slowest pace in five months as sales value increased 0.1%. Both retail trade and wholesale trade expanded 0.9% and 0.5%, respectively while motor vehicles went down -3.6%.

For quarterly performance, sales of wholesale & retail trade registered RM424.9bn in 3Q23, grew 6.8% YoY, underpinned by wholesale trade sub-sector which expanded RM11.3bn or 6.3% to RM191.1bn. This was followed by retail trade which rose 5.9% or RM10.1bn to reach RM181.3bn. Motor vehicles sub-sector also grew with double-digit growth of 11.8% or RM5.6bn to record RM52.5bn. As for quarteron-quarter comparison, this sector rose 3.0%.

Broader cost of living pressures global retail performance

Global retail sales slowed in September as broader cost of living pressures shoppers had cut back on discretionary spending. Prospects look murky as consumers could cut back on Christmas spending and a particular unwillingness to splash out on big-ticket items.

US retail sales rose 0.7% MoM in September, slightly below August’s revised 0.8% MoM gain and marks the sixth-straight month of growth. From a year earlier, retail sales were up 3.8% in September, the strongest annual gain since February. The data continues to point to robust consumer spending despite high prices and borrowing costs. UK retail sales volumes fell sharply by -0.9% MoM in September reversing from a 0.4% increase in August. Year-on-year, retail sales declined 1.0%, the smallest decline since sales started falling in April 2022. Looking at the quarterly picture, retail sales fell by -0.8% in 3Q23 when compared with the previous three months. Eurozone’s retail sales declined by 0.3% MoM in September, marking the third consecutive month of decrease. On annual basis, retail sales in the Euro Area fell by 2.9% in September, marking the 12th consecutive month of decline. This data underscores the ongoing weakness in consumer demand, attributed to persistently high inflation and elevated borrowing costs at multi-year highs.

Meanwhile, retail sales across Asian economies were mixed. China’s retail sales growth further improved to a 4-month high of 5.5% YoY in September (Aug: 4.6%). Year-to-date, retail sales rose 6.8% YoY, with most of the gains attributed to the pent-up demand during the initial borders reopening. As such, the sequential gains have lost momentum in 3Q23 after rising sharply in the earlier part of the year. On MoM basis, retail sale was near-flat at 0.02% in September vs. 0.22% in August. Retail sales in Japan climbed 5.8% YoY in September, down from 7.0% in August. On a seasonally adjusted monthly basis, sales eased 0.1% after rising 0.2% in August. For the third quarter of 2023, retail sales gained 6.6% YoY and 2.3% QoQ. Meanwhile, retail sales in Indonesia increased by 1.5% YoY in September, accelerating from a 1.1% gain in the previous month while pointing to the fourth straight month of rise. However, on a monthly basis, retail turnover fell by 1.5% in September, reversing from a 0.4% rise in August. Singapore’s retail sales growth moderated to 0.6% YoY and below August’s revised reading of 4.2% YoY. On a seasonally adjusted sequential basis, retail sales contracted 1.6% MoM in September, reversing the two prior months of expansion (Aug: 1.9%, Jul: 0.8%).

Outlook

Malaysia's distributive trade continue to record positive growth in September albeit at a slightly slower pace. Still, a year-on-year increase of 6.5% is a significant indicator of economic resilience and consumer confidence. Retail trade remained stable with a growth of 5.9% YoY. Reflecting a sustained retail trade, performance in online retail sales recorded 2.0% YoY growth in September (Aug: 1.0% Jul: 0.4%; Jun: 1.5%; May: -0.8%; Apr: 4.1%; Mar: 11.7%; Feb: 9.4%). For seasonally adjusted value, the index went up 0.3% MoM.

The positive performance was primarily attributed to resilient domestic demand, backed by sustained expansion in the services sector fuelled by the gradual increase in tourist arrivals and steady labor market conditions as well as easing inflation. With prices rising at a more manageable pace, consumers may feel more confident in their purchasing power, potentially bolstering retail sales. In the advanced 3Q23 GDP estimate, the preliminary result showed that real GDP grew by 3.3% YoY in 3Q23, marking a marginal improvement from 2.9% in 2Q23 with services sector estimated to grow by 5.1% YoY (2Q23: +4.7%), driven by increased wholesale & retail trade. Looking ahead, domestic demand is likely to remain the main anchor of growth and will cushion a persistent drag from the external sector. The services sector continued to show resilience as tourism and consumer related sectors are supported by returning tourists and favorable labor market conditions. The retail sector is expected to continue to benefit from these favorable conditions which will further bolster its performance in the coming months.

Source: BIMB Securities Research - 10 Nov 2023