● Distributive trade sales climbed to a nine-month high in February (8.5% YoY; Jan: 7.5%), mainly due to favourable base effect

- Sales value (RM117.2b; Jan: RM120.2b): fell at the fastest pace in eight months due to a further contraction in monthly trade sales (-2.5% MoM; Jan: -0.4%) amid Malaysia’s worsening COVID-19 situation in February.

● The strong YoY sales performance was mainly attributable by the retail and wholesale sectors

- Retail trade (10.2%; Jan: 7.3%): highest growth recorded since May 2021, propelled mainly by higher sales at nonspecialised stores (15.9%; Jan: 10.1%) and sales of automotive fuel and household equipment.

- Wholesale trade (6.2%; Jan: 5.7%): rose to a three-month high due to increased sales of other specialised items (6.0%; Jan: 5.2%). However, the MoM sales value returned to a contraction after six months of growth, mainly due to a sharp drop in the sales of household goods and food, beverages and tobacco.

- Motor vehicles (12.5%; Jan: 17.0%): eased to a two-month low as sales of motor vehicles slowed considerably in February (3.3%; Jan: 15.1%) despite a production ramp-up by car companies.

● Mixed trade performance across advanced economies

- US: increased to 17.7% (Jan: 14.3%) due to increased spending at gasoline stations and restaurants and bars. However, on a MoM basis, retail sales slowed sharply by 0.3% (Jan: 4.9%) as US high inflation print forced Americans to cut back on spending.

- EU: moderated to 9.9% (Jan: 12.9%), mainly due to declining food expenditure amid dwindling purchasing power.

- SG: fell sharply to its lowest level in 11 months (-3.4%; Jan: 12.0%) due to a drop in sales of food and alcohol typically post-Chinese New Year celebration.

● 2022 distributive trade sales forecast retained at 15.0% (2021: 4.0%) amid strong recovery prospects

- The improvement in the labour market and Malaysia’s further reopening of the economy may provide a fillip to the local retail sector from 2Q22 onwards. However, the worsening global supply chain disruption and rising commodity prices due to the China’s prolonged lockdown measures, coupled with the ongoing Russia-Ukraine crisis, may exert some damage to consumer spending.

- Given the recovery story and a lower base effect, we project private consumption growth to accelerate to 6.1% in 2022 (2021: 1.9%), largely supporting our 2022 GDP growth forecast of 5.0%-5.5% (2021: 3.1%).

Source: Kenanga Research - 12 Apr 2022