● Distributive trade sales growth expanded in February (14.7% YoY; Jan: 12.4%) to a four-month high

- Sales value (RM134.3b; Jan: RM135.1b): While YoY growth was up, MoM growth (-0.6%; Jan: -1.6%) remained in a contraction for the second straight month, albeit at a marginal rate.

● Higher growth was mainly due to a lower base effect and partly supported by higher motor vehicles sales

- Wholesale trade (5.9%; Jan: 3.1%): expanded to a four-month high due to a lower base effect, as MoM growth declined (-2.0%; Jan: 0.1%) at the fastest rate in 12 months.

- Retail trade (19.2%; Jan: 21.7%): moderated due to slower growth in non-specialised stores (21.1%; Jan: 24.6%).

- Motor vehicles (36.1%; Jan: 20.1%): rose sharply due to higher YoY vehicle sales of 62.6k units (Jan: 49.5k units). On a MoM basis, growth rebounded sharply by 11.7% (Jan: -13.4%). Growth is expected to remain supported in March as automakers rushed to deliver vehicles to customers before the expiry of the SST exemption.

● Retail sales growth rebounded across regional economies in February

- ID: rebounded (2.6%; Jan: -0.6%) amid lower base effect as MoM remained in a contraction due to seasonal factors.

- SG: rebounded strongly (12.7%; Jan: -0.8%) due to a lower base effect in the previous year.

● 2023 distributive trade sales growth is projected to moderate to 4.1% (2022: 19.6%)

- We retain our forecast as we expect retail sales growth to moderate in the following months due to the waning lower base effect and the diminishing effect of fiscal stimulus measures last year. This also considers the heightened external risk, such as the potential escalation of US-China tensions, the Russia-Ukraine crisis, and the imminent prospect of a global economic slowdown due to the impact of tighter financial conditions.

- Against this backdrop, we maintain the 2023 GDP growth forecast at 4.7% (2022: 8.7%), mainly supported by a resilient domestic demand amid an improvement in the labour market conditions and a gradual rise in tourism activity as reflected in higher tourist arrival. This will be further supported by the continuation of existing and new infrastructure projects by the government alongside an expected surge in investments.

Source: Kenanga Research - 12 Apr 2023