KUALA LUMPUR: Malaysia's retail trade may have surged to an eight-month high in April but consumers are still concerned about inflation expectations and personal income prospects, industry observers said.
They expect more pressures on consumer sentiment and spending in the near term, although demand should stay in expansionary mode.
Malaysia's consumer demand remained resilient as overall domestic trade expanded 6.6 per cent year-on-year (yoy) in April, the fastest pace since September 2023.
Despite low inflationary pressure and a stable job market, the Malaysian Institute of Economic Research's Consumer Sentiment Index turned lower to 87.0 points in the first quarter of 2024 (1QCY24) versus 4QCY23's 89.0.
"The sentiment trend, among others, reflects consumers' still concern on inflation expectations and personal income prospects," MIDF Research said.
According to Grips Intelligence, the average daily e-commerce transaction value in Malaysia dropped by 63.3 per cent yoy to US$48.2 million in the first five months of 2024.
In comparison, the average transaction value was US$104.5 million in 2019 and US$112.6 million in 2023.
By volume, the average daily e-commerce transaction volume dropped by 54.3 per cent yoy to 281 units during the five months (2019: 520 units, 2023: 569 units).
"Looking ahead, we foresee consumer demand to stay in expansionary mode amid positive real wage growth, better pick-up in tourism activities and supportive and accommodative economic policies.
"However, there remain downside risks to the demand, especially high inflation expectations and pessimistic consumer sentiment," MIDF Research said.
The firm opined that the higher sales and service tax rate on selected items, upside adjustment of utility tariffs and targeted subsidy measures may exert further downward pressures on consumer sentiment and spending in the near term.
UniKL Business School economic analyst associate professor Dr Aimi Zulhazmi Abdul Rashid told Business Times that the April retail trade surge was a reflection of the Hari Raya celebration coupled with school holidays, which also boosted the feel-good factor among all Malaysians.
"However, we must be cautious with the high amount of spending that may reflect the higher prices of goods. The transactions may be similar to the same period last year but the items purchased are equal or even less than before," he said.
Aimi pointed out that the depreciation of the ringgit against the US dollar has led to increased prices of goods and services, particularly those imported from abroad.
"Despite this, inflation rates have remained stable, hovering around 1.8 per cent in the first four months of the year," he added.
According to the economist, the slightly declined purchasing power albeit slower income growth to catch up with the consistent rise in inflation rates may deter consumers' confidence.
"The forecast of higher inflation rates between 2.0 per cent and 3.5 per cent by Bank Negara Malaysia when the government would implement the targeted fuel subsidies, which many believe will trigger higher inflation rates, was also a key factor contributing to the lower consumer confidence," Aimi added.
He said as the exports sector rebounds in the third and fourth quarters of this year, the domestic economy, which has been the primary driver of the country's gross domestic product, is anticipated to stabilise with modest growth for the year.
"The impact of subsidy rationalisation with higher inflation rates would certainly dampen the consumer's spending until the end of 2024," he said.
MIDF Research said among the upside factors for the resilient consumer demand in April were solid motor vehicle sales which jumped by 18.1 per cent yoy, the highest rate in six months. Sales of retail and wholesale trade, menawhile, rose by 5.5 yoy and 4.8 yoy respectively.
In terms of seasonally adjusted volume, distributive trade expanded by 5.5 per cent month-on-month to a two-year high, while motor vehicles and retail trade improved 21.5 per cent mom and 3.8 per cent mom respectively.
A stable job market and low inflationary pressure were fundamental reasons supporting the resilient domestic demand.