● Retail sales expanded for the second straight month in May (14.7% YoY; Apr: 15.6%), albeit at a slower pace, due to the base effect following a sharp contraction in the previous year (May 2020: -20.6%)

• Growth was mainly contributed by higher sales of fuels (53.5%; Apr: 37.3%) followed by apparel (52.2%; Apr: 55.2%), and other goods (43.1%; Apr: 48.2%).
• MoM: moderated sharply (3.2%; Apr: 17.3%), a three-month low.

● Slower sales growth expected in June as sales normalise post-festive season and the impact of COVID-19 resurgence

• The Real Sales Index (RSI) is expected to slow sharply in June (4.5% YoY) due to a broad-based slowdown led by a sharp contraction in stationery and communication (-31.7%) followed by household appliances (-5.2%) and cultural and recreation (-1.2%).
• On MoM, growth is expected to fall sharply (-11.1%), reflecting the impact of COVID-19 resurgence and lockdown measures imposed during the month, contradicting to consumer confidence index, which continue to improve to 107.4 (May: 104.4).

● Weaker growth expected for the next three to six months on weak demand

• 3-month Sales Expectation Index (SEI): growth expected to fall in August (-2.7%; expected Jul: 23.7), a seven-month low
• 6-month SEI: sharper growth contraction expected in November (-10.7%; expected Oct: 1.1%).

● Inflationary pressure is expected to remain weak for the next three to six months due to better distribution and supply of goods

• 3-month Price Expectations Index (PEI): price expected to fall in August (-10.2% YoY; expected Jul: -12.4%).
• 6-month PEI: weak inflationary pressure expected to persist in November (-15.9% YoY; expected Oct: -8.5%).

● Retail sales will continue to be weighed by the COVID-19 situation

• The expanded nationwide lockdown due to COVID-19 resurgence amid fears of the new variant is expected to undermine growth recovery. Nonetheless, retail sales growth is expected to remain in positive territory in the near term, mainly due to the base effect.

Source: Kenanga Research - 12 Jul 2021