● Distributive trade sales remained on a recovery path in August (-2.3%; Jul: -3.5%), charting the smallest contraction in six months

- Sales value rose to above pre-pandemic level (RM111.4b; Feb: RM109.0b) as more businesses reopened and consumers resumed purchasing activities during the Recovery Movement Control Order (RMCO) phase.

- MoM (2.5%; Jul: 5.6%): growth softened to a four-month low on dissipating pent-up demand.

● Improvement in retail and wholesale trade performance outweighed softer growth in motor vehicles sales

- Retail trade (-1.5%; Jul: -3.8%): smallest decline in six months due to increased sales at non-specialised stores.

- Wholesale trade (-3.9%; Jul: -4.5%): contraction narrowed further largely on a lessened fall in sales of other specialised items.

- Motor vehicles (1.0%; Jul: 1.7%): moderated on a softer growth in motor vehicles sales (3.1%; Jul: 5.8%), albeit remained relatively high as consumers continued to take advantage of the tax holiday.

● Retail performance across advanced and developing economies remained mixed

- Euro area: rose by 3.7% (Jul: 0.7%), its highest level since Oct-18 (4.6%), underpinned by a rise in sales for nonfood products, specifically via mail orders and online trade.

- JP: continued its decline into the sixth month at -2.0% (Jul: -3.0%) due to weak consumer demand recovery.

● 2020 distributive trade sales forecast slashed to -5.5% to -4.5% (previous forecast: -2.5% to -1.5%; YTD: -8.6%; 2019: 5.9%) reflecting greater downside risks arising from the 3rd wave of COVID-19 infections

- The projected recovery in distributive trade sales is partly slowed by the flare-up in COVID-19 infections, resulting in the reinstatement of Conditional Movement Control Order (CMCO) and Targeted Enhanced MCO (TEMCO) in affected areas, weighing on sentiment and hindering consumer activities. However, the downside will be partially weathered by additional fiscal injection in the 4Q20.

- Private consumption growth is projected to register a softer contraction in 3Q20 (-7.0%; 2Q20: -18.5%), with the overall economy expected to contract by 6.2% (2Q20: -17.1%).

Source: Kenanga Research - 13 Oct 2020