Malaysia: Consumer spending in 4Q to be resilient on pent-up demand

PETALING JAYA: Malaysia may experience downward pressure on its sales activity in the next few months due to monetary tightening, global economic slowdown and rising cost of living, says Kenanga Research.

The research house, however, said strong seasonal factors this month, coupled with the influx of tourists, would continue to help to support the domestic retail industry in the final quarter of the year.

Having a similar view, MIDF Research, said consumer spending would remain resilient as pent-up demand would continue until the end of the year, underpinned by domestic economic reopening, improving labour market, and stable inflationary pressure.

According to MIDF Research, the country’s monetary policy is on a normalisation process rather than a tightening path and the overnight policy rate (OPR) could go up to 3% by early 2023.

“Even though the OPR is on the upward trajectory, we believe it would have minimal effect on the domestic spending outlook,” MIDF Research said.

It noted that the current OPR of 2.75% is still below the 3% level in 2019.

Meanwhile, consumer spending has been expanding robustly as reflected by retail trade sales which posted a 24.2% year-on-year (y-o-y) growth in the first 10 months of the year.

Going forward, MIDF Research said retail spending would stay on an expansionary path especially with inflation outlook staying low, underpinned by the appreciating ringgit, better global and domestic supply conditions as well as subsidies support from the government.

“Looking at the macro outlook and improving fundamentals, we raise our retail trade growth forecast from 17.6% y-o-y to 23.5% y-o-y for this year,” it said.

Kenanga Research, on the other hand, retained its distributive trade sales growth forecast for 2022 at 20% y-o-y.

Last week, the Statistics Department said Malaysia’s distributive trade, which is the sum of wholesale trade, retail trade as well as sales in relation to motor vehicles, continued to record a sturdy growth of 15.2% y-o-y to RM133.9bil for October.

Chief statistician Datuk Seri Mohd Uzir Mahidin said the increase was attributed to the retail trade sub-sector which rose RM12bil or 26% y-o-y to RM58.3bil.

“Wholesale trade also grew 7.3% y-o-y or by RM4.1bil to RM59.9bil, while motor vehicles expanded 11.2% y-o-y or by RM1.6bil to RM15.7bil respectively,” he said.

Commenting on international passenger movement, MIDF Research said it had surpassed two million and the last time it hit above the two-million mark was in February 2020.

“Our view is that the earliest for passenger traffic to reach 2019’s level is only by 2024,” it said.

In October, passenger traffic rose by 9.6% month-on-month, thanks to both Asean and non-Asean tourists as well as domestic passengers, MIDF Research noted.

Moving forward, the research house said airports passenger movements would improve in the fourth quarter underpinned by border reopening by Japan.