Data Highlights

• In January 2024, Malaysia's Distributive Trade Index (DTI) rose 3.5% YoY to 152.3 points, slightly above the 3.4% YoY gain observed in December 2023. This positive momentum can be attributed to the ongoing resurgence in economic activities, bolstered by an improved labour market and manageable inflationary pressures throughout the month. On a month-on-month basis, there was a marginal dip of 1.3% (compared to December 2023's 1.0% MoM increase) in the DTI. Simultaneously, Malaysia's Distributive Trade Sales experienced a commendable 5.4% YoY expansion, amounting to RM142.4bn.

• The upswing in Malaysia's DTI was notably buoyed by gains across all key segments, including Retail Trade, Motor Vehicles, and Wholesale Trade. The Volume Index for Wholesale Trade, holding the largest share of the total distributive trade, posted a 4.0% YoY increase. It marked an improvement from the 3.4% YoY gain recorded in December 2023. Similarly, Motor Vehicles experienced a surge, with a noteworthy 12.1% YoY increase, reaching 131.8 points. This outperformed the 3.9% gain observed in the previous month, underscoring a pronounced upward trend in this particular sector. In addition, Retail Trade witnessed a 1.4% YoY growth, reaching 173.5 points. This expansion can be attributed to the sustained demand for consumer goods, aligning seamlessly with the overall improvement in domestic economic activities.

• In the current year, consumer spending is poised to maintain its resilience, buoyed by several key factors. The ongoing improvement in the labour market is a pivotal contributor, with the anticipated jobless rate averaging 3.2% in 2024, slightly down from 3.4% in the previous year. This positive trend is reinforced by an expected growth in employment, further fortifying the foundation for robust consumer confidence. Moreover, the manageable inflationary pressure, as projected by the Ministry of Finance at 2.1% to 3.6% and our forecast of 2.9%, adds another layer of stability to the economic landscape. This inflation management ensures that individuals can make informed purchasing decisions without the burden of excessive price hikes.

• A crucial aspect enhancing consumer spending resilience lies in the consistency and stability of income. A reliable income source instils confidence and financial security, assuring individuals that they can fulfil their basic needs while also considering discretionary purchases. A thriving job market and abundant employment opportunities contribute to higher income levels, subsequently fostering a greater willingness among individuals to allocate funds towards discretionary items and experiences, thus stimulating economic growth and vitality.

• We assess that the risk to consumer spending patterns remains minimal, notwithstanding the current depreciation of the Malaysian Ringgit against the greenback. As of the latest update, the Ringgit has weakened by 2.03%, reaching RM4.689/USD. While a weaker currency typically renders imported goods more expensive for consumers, potentially resulting in increased prices for various products like electronics, machinery, and raw materials, there are potential mitigating factors to consider. Consumers may respond to higher prices of imported goods by adjusting their consumption habits. This could involve a reduction in the consumption of imported items or a shift in preferences towards domestically-produced goods and services. Such a shift not only helps consumers navigate cost challenges but also benefits local industries, contributing to economic growth in specific sectors.

• From a correlation perspective, we anticipate a parallel trajectory between the performance of Private Consumption Expenditure (PCE) in real Gross Domestic Product (GDP) and the DTI, given their robust correlation of more than 95%. Drawing insights from the latest Malaysia Economic Outlook, the PCE is forecasted to witness a notable increase of 5.7% (TA: 6.2%) in 2024.

• Government initiatives, particularly cash transfers targeting specific groups, are expected to play a significant role in bolstering household spending. Additionally, major international events such as the UEFA Euro 2024 and the 2024 Olympic Games, along with the growing trend of social commerce, are poised to further stimulate private consumption throughout the year. The high correlation between DTI and PCE underscores the interdependence of distributive trade activities and overall private consumption, making these projections aligned with the broader economic landscape. As the various factors continue to interplay, the synchronised growth in these indicators is anticipated to contribute positively to Malaysia's economic vitality in 2024.

Source: TA Research - 14 Mar 2024