• As of 2Q 2024, distributive trade grew by +6.3% YoY, the fastest pace since 4Q 2023.
   
• As of 1H 2024, distributive trade rose by +5.9% YoY, lower than previous year’s average of +7.7% YoY.

• Retail trade share to trend higher in 2H 2024 amid low inflationary pressure, stable job market, supportive economic policies, and strong recovery of tourism activities.

• We foresee private consumption and services sector to expand above +5.0% YoY in 2Q 2024 as compared to +4.7% YoY in 1Q 2024.

• Malaysia’s retail trade growth to stay above +6.0% YoY in 2H 2024.

Steady domestic consumption continues. Overall distributive trade sales improved by +5.4%YoY in June 2024. All components recorded growth yet sales of motor vehicles moderated to 14-month low of +2.0% YoY and wholesale trade registered +4.0% YoY, the softest pace in 3-month. Retail trade growth remains solid with +7.9% YoY, slightly lower than 13-month high recorded in the previous month. On monthly basis, seasonally-adjusted distributive trade sales fell by -0.8% MoM while retail trade up by +0.2% MoM in June 2024.

Distributive trade sales growth hit 3-quarter high in 2Q 2024. As of 2Q 2024, distributive trade grew by +6.3% YoY, the fastest pace since 4Q 2023. Among the key drivers are motor vehicles and retail trade which expanded by +10.2% YoY (1Q 2024: +8.2% YoY) and +7.4% YoY (1Q 2024: +5.2% YoY) respectively. As of 1H 2024, distributive trade rose by +5.9% YoY, lower than previous year’s average of +7.7% YoY. The steady expansion of domestic demand underpins by stable job market, low inflationary pressure, supportive fiscal & monetary policies, and strong recovery of tourism activities. Using MAHB’s passenger movements as tourism proxy, international passenger hit 90.9% of 2019-level as of 1H 2024 (2023: 72.4%). Also, the withdrawal of EPF Flexible account effective 11th May 2024 was another upside factor for Malaysia’s domestic demand in 2Q 2024 onwards. We believe 2Q 2024 GDP to trend above +5.0% among others driven by steady domestic consumption.

Retail trade holds larger share of distributive trade. Based on distributive trade share, retail segment is recording a new high of 43.5% as of 1H 2024. Non-specialised stores and automative fuel shares are rising faster, contributing almost 50.0% of the retail trade. Share of motor vehicles improved to 12.3% in 1H 2024, equivalent to 2017-level. We foresee the retail trade share to trend higher in 2H 2024 amid low inflationary pressure, stable job market, supportive economic policies, and strong recovery of tourism activities.

Softening American retail spending. Retail sales in the US grew modestly by +2.3% YoY in June 2024, the softest pick-up in 4-month. On monthly basis, the retail sales inched up by +0.3% MoM. The softening retail spending in the US is in tandem with moderation of job growth and rise in unemployment rate. Looking into July 2024, we shall expect further softening of the spending as jobless rate surged to 4.3%, the highest since October 2021. Hence, this adds more reasons for the Fed to consider its first rate cut in 2H 2024. Apart of the US, retail sales in Euro Area contracted by -0.3% YoY and -0.3% MoM. We opine the weak retail spending in the region is among factors prompting the ECB to consider another rate cuts in 2H 2024. Across the globe, China’s retail trade growth remains tepid registering +2.0% YoY, well below market expectations of +3.3% YoY.

Outlook

Malaysia’s 2Q 2024 GDP to hit above +5.0% YoY. As of 2Q 2024, distributive trade grew by +6.3% YoY, the fastest pace since 4Q 2023. Among the key drivers are motor vehicles and retail trade which expanded by +10.2% YoY (1Q 2024: +8.2% YoY) and +7.4% YoY (1Q 2024: +5.2% YoY) respectively. With this momentum, we foresee private consumption and services sector to expand above +5.0% YoY in 2Q 2024 as compared to +4.7% YoY in 1Q 2024. We keep our forecast for private consumption at +5.2% YoY in 2024.

Malaysia’s retail trade growth to stay above +6.0% YoY in 2H 2024. As of 1H 2024, the retail sales grew by +6.3% YoY (2023: +9.0%). We expect the domestic consumption to stay on expansionary momentum underpin by stable job market, low inflationary pressure, supportive fiscal & monetary policies, and strong recovery of tourism activities. On top of that, the EPF Flexible Account withdrawal which effective on 11th May 2024 and 30 days visa free travel to certain countries such as China and India will boost Malaysia’s retail trade as well as overall distributive trade sales in 2H 2024. However, we view potential uprise of inflation rate due to subsidy rationalisation of RON95 as one of downside risks to domestic demand in 2H 2024.

Source: BIMB Securities Research - 9 Aug 2024