• Malaysia’s distributive trade sales expanded by +6.7% YoY in July 2024. All components recorded growth especially motor vehicles sales surged by +12.2% YoY.

• Wholesale trade grew by +5.5% YoY whereas retail trade growth at 3-month low of +6.4% YoY.

• Recovery rate of foreign tourist arrivals is at 88.4% as of 1H 2024, reported by Tourism Malaysia.

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

Distributive trade growth improved despite moderating retail sales. Malaysia’s distributive trade sales expanded by +6.7% YoY in July 2024. All components recorded growth especially motor vehicles sales surged by +12.2% YoY. Wholesale trade grew by +5.5% YoY whereas retail trade growth at 3-month low of +6.4% YoY. On monthon-month basis, seasonally-adjusted distributive trade sales up by +2.1% (June 2024: +1.6%) as motor vehicles jumped by +21.0% and wholesale trade by +3.1%. Seasonallyadjusted retail trade down by -0.7% MoM, registering three straight months of contraction. As of 7M 2024, distributive trade sales rose by +6.0% (2023: +7.7%). Despite of slight moderation on retail sales, fundamental factors stay solid amid low unemployment rate, soft inflationary pressure, supportive economic policies, and reviving tourism activities.

Consumer spending to be fuelled with income growth. The withdrawal of EPF Flexible account effective 11th May 2024 is additional upside factor for Malaysia’s domestic demand in 2Q 2024 onwards. Also, salary hike for civil servants which represent approximately 10.0% of employment will boost local spending in 4Q 2024, 2025 and 2026. As for tourism activities, recovery rate of foreign tourist arrivals is at 88.4% as of 1H 2024, reported by Tourism Malaysia. Tourists from India and Europe recorded 51.6% and 5.4% higher than 2019-level. Using MAHB’s passenger movements as tourism proxy, international passenger hit 91.6% of 2019-level as of 7M 2024 (2023: 72.4%). ASEAN passengers at 93.8% while non-ASEAN at 89.5%.

Bright outlook for motor vehicles sales. Based on distributive trade share, motor vehicles segment recorded growth of 12.4% as of 7M 2024 which is more than 2017-level. Unlike prepandemic era, maintenance & repair and parts & accessories are taking bigger shares in the motor vehicles segment. 14.6% is the highest ever recorded by the maintenance & repair and 27.6% is a new peak for the parts & accessories. We opine consumers spent the extra income among others on the two sub-segments of motor vehicles. Looking ahead, we foresee stronger demand on motor vehicles and its sub-segments in 2025 amid the spill-over effects of civil servants’ salary hike.

American retail sales growth at 3-month high. Retail sales in the US grew steadily by +2.7% YoY in July 2024, the fastest pick-up in 4-month. On monthly basis, the retail sales increased by +1.0% MoM, the biggest monthly gain since January 2023 and above market consensus of +0.3% MoM. Looking into August 2024, we predict continuous sturdy consumer spending as jobless rate edged down to 4.2% (July 2024: 4.3%), moderating inflationary pressure and average hourly wage growth improved by +3.8% YoY (July 2024: 3.6% YoY). Apart of the US, retail sales in Euro Area stayed on contractionary form for twoconsecutive months. We view the sluggish 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 recorded at +2.7% YoY, slightly above market expectations of +2.6% YoY.

Outlook

Malaysia’s retail trade growth to remain above +6.0% YoY in 2H 2024. As of 7M 2024, the retail sales grew by +6.3% YoY (2023: +9.0%). The stronger consumer spending was also reflected in the performance in online retail sales which expanded 5.7% YoY in July (Jun: 4.8%; May: 5.2%; Apr: 4.3%). For seasonally adjusted value, the index increased 1.5% as against the previous month. 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. Announcement of civil servants’ salary hike may boost consumer confidence especially in 4Q 2024 onwards. 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 - 10 Sept 2024