KUALA LUMPUR: Malaysia's retail trade may not match the nearly double-digit growth last year as the Gaza conflict and disruptions in sea logistics have driven up shipment costs, resulting in higher prices for consumers.
Even a 7.5 per cent expansion in retail trade projected by MIDF Research this year seems like a tall order.
MIDF Research expects the 7.5 per cent, down from last year's 9.0 per cent growth, on the back of resilient consumer demand amid a healthy labour market and softening inflation pressure.
Malaysia Retail Chain Association president Datuk Sharan J. Valiram said factors such as fluctuations in the ringgit against the US dollar add to the uncertainty, especially since most trade is conducted in the greenback.
Some businesses have already exceeded the pre-pandemic levels, said Valiram, but the question is whether this growth is sustainable moving forward.
"Continuous growth could be difficult to sustain if currency continues to devalue, cost of logistics keeps going up, new taxes being imposed. In other words, prices must be kept attractive for consumers to continue spending," he told Business Times.
Valiram also said a resilient labour market is a healthy indicator for the retail industry. However, any growth will be subject to how the government tackles the issue of cost of living.
The current economic challenges such as increased tax on electricity and subsidy cuts may hinder consumers spending.
Retail trade growth depends on how much money consumers have in their pocket at the end of the day minus their monthly financial obligations, said Valiram.
Valiram said a stable income growth can be correlated to a higher spending pattern among consumers.
This is only relevant if cost of living does not increase in tandem with their income in which we expect to see a plateau instead in terms of consumer spending," he added.
Although it may not reach the pre-pandemic level for this year, by absolute value, the retail trade has reached the before Covid-19 levels as last year it valued at RM720.6 billion against 2019 with RM537.6 billion.
In fact, in 2022, the retail trade saw the value surpass the 2019 level, garnering RM661.1 billion.
MIDF Research said fundamentally, a stable and healthy job market remains as the key to consumer demand.
Another factor is positive wage growth. Even if inflation to average 3.5 per cent, still below nominal wage growth average of 5.0-6.0 per cent growth.
"But, in order to have a stable income growth, the real wage growth must be positive.This will improve purchasing power and contribute more impact to the overall economy," MIDF told Business Times.
It also said higher tourist arrivals will support the steady expansion of retail trade, although foreign tourist arrivals are still below pre-pandemic level.
In the first 11 months of 2023, Malaysia's distributive trade sales increased by 7.9 per cent year-on-year, with retail trade rising 9.4 per cent.
On the other hand, experts believe tourism activities would be the growth catalyst for the retail industry due to the sheer spending potential of select nationalities.
Many retailers have geared up in anticipation of the increased number of tourists coming into Malaysia.
"We can expect that the tourism sector will contribute to growth due to the tourist friendly policies which will encourage tourists to visit and shop in Malaysia. The wage increment policy has also contributed to some extent," added Valiram.
