Economy: Retail Trade Remains Resilient Despite Inflation Concerns

Based on the latest DOSM figures, Malaysia’s distributive trade sales growth softened to a 5-month low although it continued on a double-digit expansion rate for 5 consecutive months, 15.2%yoy in Oct-22.

By component, retail spending expanded strongly by 26%yoy, wholesale trade was up by 7.3%yoy and motor vehicle sales by 11.2%yoy. The moderating growth rates are highly expected due to receding low-base effects. On a month-on-month basis, only retail sales registered positive growth of 1.1%.

Looking ahead, MIDF opines the upbeat momentum of domestic demand to continue in 4QCY22 and 2023 amid a steady labour market, softening inflationary pressure and supportive economic policies.

Despite inflationary pressure, Malaysia’s retail sales remained resilient persistently recording positive month-on-month growth since March 22. The sequential monthly growth trends for overall distributive trade, wholesale and motor vehicles are mixed for the past 10 months. Excluding food inflation, the overall price increase in Malaysia remains stable and supportive of consumer spending. On top of that, continuously improving the labour market adds to the firm retail trade activities. We expect retail spending to stay on an expansionary path especially with the inflation outlook to stay low underpinned by the appreciation of Ringgit, better global & domestic supply conditions and subsidy support from the government.

Malaysia’s consumer spending is expanding strongly as reflected in retail trade sales growth of 24.2%yoy in 10MCY22. Looking at the macro outlook and improving fundamentals, MIDF is raising its retail trade growth forecast from +17.6% to +23.5% for this year. The house believes the pent-up demand will continue until the end of this year underpinned by the domestic economy reopening, improving labour market, and stable inflationary pressure. Even though OPR is on an upward trajectory, MIDF believes it would have minimal effect on the domestic spending outlook. Current OPR at 2.75% still below 2019’s level of 3.00%. Malaysia’s monetary policy is believed to be on a normalisation process rather than a tightening path, possibly to reach 3.0% by early 2023.

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