Retailers cut 2015 growth forecast again but expect modest overall increase in consumer spending

Retail Group Malaysia (RGM) has made a third cut in its retail sales growth forecast for Malaysia this year from 4.9% to 4%, reports The Edge Financial Daily. RGM expects consumers will continue to postpone spending due to the higher cost of living and higher retail prices from a weaker ringgit and higher cost of business in the second half of 2015.

In the Malaysian Retail Industry report released yesterday, it RGM noted that “the greatest challenge” in the second half of the year (2H2015) for the retail industry in Malaysia is still consumer spending. “Consumers have been holding back on spending since the end of last year due to the Goods and Services tax (GST). Further increases in cost of living in the near future will worsen it.”

Apart from higher retail prices due to the weak ringgit, RGM also expects higher transport costs

Retail sales, which grew 4.6% in 1Q2015, are expected to contract by 3% in 2Q2015, but before turning positive at 4.8% in 3Q2015 and pick up the pace to 6.9% in 4Q2015. RGM forecasts an overall 4% growth for the year.

However, RHB Research economist Peck Boon Soon believes that upcoming annual festivities would not add much retail growth as consumers have turned cautious, especially given the hike in petrol prices. He said the consecutive recent hikes mean consumers have less money to spend.

Nonetheless, Peck also notes there should be no more revisions to the projected 2015 retail growth rate, as 4% is not considered to be a robust figure and is within expectations.

Hong Leong Research economist Sia Kat Ee says GST will cause retail growth to slow, citing the experience of other countries that have introduced a consumption tax, where it took between three to six months for spending to recover. He expects Malaysian consumers to resume spending at the end of the 3Q2015 when the “effects of the GST starts wears off.”

Both Peck and Sia agree that the forecast 6.9% growth rate in 4Q2015 is realistic despite the petrol price rise.

“I believe that the fundamentals of the country’s economy are resilient. As long as the job market remains stable and the GDP growth rate remains at a healthy 5%, consumer spending will return,” Sia says.

Economist at Asli Centre for Public Policy Studies, Tan Sri Ramon Navaratnam, demurs.

“There has to be a strong explanation for the growth rate at 6.9%. At this stage, it is difficult to be certain and there should not be a high expectation of the future. I hope that there will not be a downward trend in private consumption, and we need to watch the figures carefully [for a] slowdown economic growth,” he said.