Most industry observers are upbeat about the retail sector this year, expecting a rebound in the first quarter after a mild contraction in the last three months of 2023.
Most industry observers are upbeat about the retail sector this year, expecting a rebound in the first quarter after a mild contraction in the last three months of 2023.
They also expect the momentum to persist in the second quarter amid promising signs of economic growth as the tourism sector, among others, improves.
Based on Statistics Department data, the retail trade for Feb 24 maintained a positive trajectory, with 5.8 per cent year-on-year and 0.7 per cent month-on-month growth to RM61.5 billion.
This was primarily driven by increased consumer spending during the Chinese New Year.
Cumulatively, retail trade increased 4.2 per cent year-on-year in the first two months, propelled by sustained growth in non-specialised retail, food and beverage (F&B), tobacco, household equipment and other stores.
Notably, the out-of-home F&B consumption segment continued its robust performance, marking the 30th consecutive month of positive momentum.
Sunway University economics professor Dr Yeah Kim Leng said key factors underpinning the expected retail sales recovery this year include continuing income and job growth, low unemployment, uptick in consumer confidence, recovery in the export sector and higher tourism activities.
"While the industry is facing rising input cost pressures, the increase is manageable on account of improving demand and purchasing power.
"The shift to online shopping and e-commerce, however, could have a dampening effect on physical store sales but overall retail sales activity is expected to increase in line with the four to five per cent gross domestic product growth projected for 2024."
Penang Institute economist and socioeconomic researcher Doris Liew said a significant increase in the number of Malaysians entering the workforce will translate into increased retail spending.
"We are likely to see a continued uptick in retail spending in the second half of the year, driven by several factors.
"The combination of wage growth policy, Employees Provident Fund's flexible account, targeted fuel subsidy transfers and Rahmah cash assistance and tourism influx sets a favourable stage for continued growth in retail spending during the latter half of the year."
A consumer analyst at MIDF Research pointed out that retail sales are projected to grow four per cent this year.
It had contracted 0.2 per cent in the fourth quarter of 2023.
The analyst said foreign tourist arrivals are likely to improve further this year, especially with the 30-day visa-free policy for citizens of China and India.
In February this year, foreign passenger movements stood at 81.2 per cent of the February 2019 level during the Chinese New Year season.
"Due to the long holiday, we observed that domestic passenger movements jumped 20.4 per cent month-on-month.
"The domestic passenger was the only upside factor for the airport movements in February."
The international segment is expected have improved from March onwards, he added.
Apart from tourism recovery, consumer demand remains steady, underpinned by a stable job market, positive real wage growth, cash assistance and accommodative economic policies.
However, MIDF Research remains selective on the performance of the consumer sector this year.
"We believe the inflationary outlook is likely to diminish consumers' disposable income.
"We foresee cautious consumer spending ahead, where consumers may tighten their budgets for non-essential items (particularly larger purchases).
"This cautious approach is expected to impact consumer discretionary companies, as reduced spending will affect their revenue and promotional activities will likely squeeze their margins.
"Hence, we continue to favour consumer staples but remain cautious on consumer discretionary stocks," he added.
Meanwhile, the Malaysia Retail Chain Association (MRCA) is not as bullish as the others, expecting further contraction due to several factors.
These include geopolitical tensions that have increased the overall logistics cost, delayed inbound tourism recovery and currency fluctuations.
New policies with regard to fuel subsidy rationalisation and e-invoicing are also expected to have a significant impact on retailers moving forward, it said.
MRCA said managing business costs remains the biggest challenge.
"Rising cost of commodities increases the cost of raw materials and consequently, the cost of goods for consumers.
"In a demand-driven industry, there is potential that supply will outweigh demand if prices continue to soar. At this juncture, we may see instability for businesses to experience the agility factor to scale up going into the next three quarters, including cross-border trade," it added.
Economy Rice podcast macroeconomic analyst Aaron Pek said the country's economy has yet to fully recover from the effects of pandemic-induced lockdowns.
This will possibly lead to deflationary impulses such as higher savings as a percentage of income or a reallocation of discretionary spending to non-discretionary expenses.
With petrol subsidies about to be curtailed, this is likely to have an inflationary impact on the retail sector from higher input costs.
Targeted subsidies may provide some support to consumer sentiment, but the overall impact from this development is likely to be net negative to the retail sector, he said.
Pek said higher US interest rates could be another potential source of weakness, resulting from a wider outflow of liquidity from emerging markets which could lead to poorer discretionary spending.
"Policymakers appear to be stuck between a rock and a hard place, with their attempts to balance the government budget in the face of greater Keynesian stimulus," he said.
Industry observers said as income levels take time to catch up with the cost of living, the healthy employment market and continuous government aid for the lower income groups should underpin the overall consumer spending and demand for staple necessities.
Source: nst.com.my
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