● Distributive trade sales growth moderated in March (11.9% YoY; Feb: 14.3%) to a 12-month low but remained relatively high

− Sales value (RM138.5b; Feb: RM133.8b): Surged to a record high, with MoM growth (3.5%; Feb: -1.0%) rebounded to a 12-month high following two straight months of growth contraction. Overall, 1Q23 growth moderated slightly to 12.8% (4Q22: 14.3%), indicating a resilient domestic demand during the quarter.

● Slower growth for motor vehicles due to high-base effect, but partly supported by higher wholesale trade

− Wholesale trade (7.6%; Feb: 5.9%): expanded to a six-month high boosted by higher household goods ((16.4%; Feb: 15.8%) and food, beverages and tobacco (12.9%; Feb: 9.9%).

− Retail trade (17.7%; Feb: 19.2%): moderated slightly due to a broad-based slowdown in the sub-components led by slower growth in non-specialised stores (19.8%; Feb: 21.1%).

− Motor vehicles (9.3%; Feb: 32.3%): slowed sharply to a five-month low due to a smaller expansion in sales of motor vehicles (3.8%; Feb: 42.4%) amid the high base effect recorded last year. Nonetheless, sales of vehicles remain relatively high at 78.8k units, a record high.

● Retail sales growth rose in March across regional economies

− CN: rebounded sharply (10.6%; Feb: -1.8%) after contracting since October 2022 and surpassing expectations.

− ID: expanded (4.8%; Feb: -0.8%) for the second straight month and at the fastest pace since August 2022.

● 2023 distributive trade sales growth forecast maintained at 4.1% (2022: 19.6%)

− Despite better-than-expected growth in 1Q23, we still expect retail sales growth to slow in the following months as the economy normalises, considering the waning lower base effect and the lapse of economic stimulus since last year. We have also factored in the downside risk to growth, particularly the external risk related to geopolitical tensions between US and China, the prolong Russia-Ukraine war as well as the imminent prospect of a global economic slowdown due to the impact of tighter financial conditions brought by global monetary policy tightening.

− Likewise, we maintain our GDP growth forecast, with 1Q23 growth to moderate to 5.1% (4Q23: 7.0%) versus the consensus of 4.8%. Nevertheless, there is some upside bias to growth in the 1H23, given the resilient domestic demand following the increase in tourist arrivals and steady labour market conditions. Against this backdrop, we retain the 2023 GDP growth forecast at 4.7% (2022: 8.7%)

Source: Kenanga Research - 11 May 2023