● Distributive trade sales expanded slightly in May (6.6% YoY; Apr: 6.3%)

- Sales value (RM138.0b; Apr: RM136.0b): increased to a two-month high as MoM growth rebounded (1.5%; Apr: - 1.8%), following a weak momentum in the previous month.

● Growth was attributable to higher sales of motor vehicles and expansion in the wholesale trade

- Motor vehicles (22.0%; Apr: -5.1%): rebounded sharply to a three-month high, supported by surging sales (29.8%; Apr: -17.3%) in line with higher sales of vehicles (61.8k units; Apr: 46.6k units).

- Wholesale trade (4.4%; Apr: 3.2%): expanded to a two-month high, partly contributed by higher food, beverages and tobacco (9.6%; Apr: 7.7%) and household goods (7.9%; Apr: 5.4%).

- Retail trade (5.0%; Apr: 12.9%): moderated to the lowest since December 2021, partly due to a broad-based slowdown in the sub-components led by a sharp moderation in the non-specialised stores (8.4%; Apr: 18.0%) and automotive fuel (6.0%; Apr: 19.6%).

● Retail sales slowed in May across regional economies

- CN: moderated to a two-month low (12.7%; Apr: 18.4%), but growth remained at double-digit expansion. Despite slower growth, the year-to-date retail sales grew by 9.3% YoY (vs Jan-Apr: 8.5%)

- SG: moderated (1.8%; Apr: 3.7%) to a four-month low, partly due to a higher base effect recorded last year.

● 2023 distributive trade sales growth forecast maintain at 4.1% (2022: 19.6%) amid a cautious growth outlook and the impending global economic slowdown

- Year-to-date, distributive trade grew 10.2%, supported mainly by resilient domestic demand, with further expansion in the services sector following the reopening of economic activities and as the economy returned to normal. Sales growth will remain supported by higher motor vehicle booking backlog (May: 275k units), rising tourist arrivals, and a lower unemployment rate, which we project to average 3.5% for the year (2022: 3.8%). Nevertheless, we maintain our cautious outlook as growth is expected to moderate in 3Q23 due to the diminishing base effect and considering the impact of the global economic slowdown and the absence of pandemic stimulus enjoyed last year.

- Against this backdrop, we maintain a 2Q23 GDP growth forecast of 6.0% (1Q23: 5.8%). However, we still expect growth to moderate sharply in the 2H23 at 3.6% (1H23F: 5.8%) on the expectation of slower global economic growth. Hence, this brings about a full year 2023 GDP growth forecast of 4.7% (2022: 8.7%).

Source: Kenanga Research - 13 Jul 2023