• Distributive trade sales growth grew at a moderate pace in September (6.5% YoY; Aug: 6.7%), with MoM growth slowed sharply (0.1%; Aug: 2.0%)
  
  − Sales value (RM142.7b; Aug: RM142.5b): surged to a record high amid resilient domestic demand.
  
  − 3Q23 (6.8% YoY; 2Q23: 5.7%): overall, growth expanded, likely to support services and private consumption growth.

• While growth of motor vehicles and retail trade slowed, higher sales in wholesale trade partly took up the slack
  
  − Motor vehicles (7.0%; Aug: 9.7%): slower growth due to weaker monthly sales, as reflected by a contraction in MoM growth (-3.6%; Aug: 7.1%). This was also attributable to a moderate vehicle sale (3.8%; Aug: 6.2%) as reflected in lower unit sales (68.2k units; Aug: 71.7k units). Meanwhile, sale, maintenance and repair continued in a contraction (-22.5%; Aug: -17.6%) for six months.
  
  − Wholesale trade (6.9%; Aug: 6.2%): expanded to a six-month high, driven by higher sales of agriculture, raw materials and live animals (9.9%; Aug: 7.9%) and other specialised trade (8.6%; Aug: 6.2%). These two sub-sectors contributed 1.9 ppts (Aug: 1.4 ppts) to overall growth.
  
  − Retail trade (5.9%; Aug: 6.3%): growth slowed due to a sharp slowdown in the sales of automotive fuel (5.5%; Aug: 8.9%) and sustained weakness in information and computer equipment (-1.5%; Aug: -2.3%). Nonetheless, growth was partially supported by sustained increases in food, beverages and tobacco (13.4%; Aug: 13.3%), reflecting a strong domestic demand partly backed by increased tourist arrivals.

• Mixed retail sales performance across regional economies
  
  − CN: rose to a four-month high (5.5%; Aug: 4.6%), beating expectations, boosted by the summer travel season.
  
  − SG: slowed to an eight-month low (0.6%; Aug: 4.2%), weighed by a slowdown in the sales of expensive items.
  
  − ID: expanded slightly to a four-month high (1.8%; Sep: 1.5%) driven by higher sales in other household equipment, spare parts and accessories, as well as food, beverages and tobacco.

• 2023 distributive trade sales growth forecast maintain at 7.1% (2022: 19.6%) and to expand to 8.0% in 2024
  
  − Despite a slowdown in external trade, weighed by the uncertainty in the global economy and tighter financial conditions, domestic demand remains resilient, as reflected by solid distributive trade sales in 3Q23 (6.8%; 2Q23: 5.7%). Meanwhile, YTD sales growth grew 8.3% to RM1.2t compared to RM1.1t in the same period last year, backed by steady labour market conditions and recovery in the tourism-related subsectors.
  
  − We expect sales growth to remain positive in the coming months due to the festive holiday season and potential rush in demand for big-ticket items ahead of the hike in sales and service tax (SST) to 8.0% from the current 6.0%. This will support higher GDP growth in the 4Q23 at 4.5% from an estimated 1.7% in the 3Q23. Nonetheless, we maintain our 2023 GDP growth forecast at 3.5% - 4.0% (2022: 8.7%) as we expect 3Q23 growth to slow amid tepid manufacturing growth, specifically the export-oriented sector and the effect of the high base last year.

Source: Kenanga Research - 10 Nov 2023