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MIDF: Domestic Demand to Boost Malaysia's GDP Growth in 2Q

Domestic demand will continue to boost Malaysia's gross domestic product (GDP) growth in the second quarter of 2023 (2QFY2023) and overall expansion rate for this year, said MIDF Research.

In a note on Wednesday (July 12), the research firm said domestic demand is on an upbeat momentum underpinned by a steady labour market, softening inflationary pressure, pick-up in tourism activities and supportive economic policies.

Although the country’s retail trade recorded its slowest growth in May 2023 since January 2022, moderating 5% year-on-year (y-o-y), MIDF said the overall distributive trade sales growth improved to 6.6%, from a 16-month low of 6.3% in April 2023.

Wholesale trade grew 4.4% y-o-y while sales of motor vehicles surged by 22%, the research firm noted, citing figures released by the Department of Statistics Malaysia (DoSM).

“On a monthly basis, both wholesale and motor vehicles increased by 2.1% and 16.2% month-on-month respectively," said MIDF.

As for the first five months of 2023, the distributive trade sales increased by 10.2% y-o-y, against 12.1% for the same period of 2022, while retail sales improved 15% y-o-y compared with 15.6% previously.

Tourism Recovery to Pre-Pandemic Level by 2024

On tourism, MIDF expects airport passenger movements to improve this year, underpinned by the reopening of borders by China and Japan.

MIDF noted that Malaysia registered 6.8 million airport passenger movements in May 2023, one year after the country reopened its border.

“This was 86.2% of May 2019 passenger data. Domestic passenger movements was at 98.9% of the same period in 2019,” the research firm noted.

As for international passenger movements, MIDF said that it was still recovering at 73.9% to the pre-pandemic level in May 2023.

Prior to the pandemic, 50.7% of Malaysia’s airports passenger traffic was contributed by international travellers, with 25% contributed by Asean travellers and 25.7% by non-Asean travellers.

As of May 2023, domestic travellers accounted for 56.3% on average [2022: 71.7%] compared with international travellers at 43.7% [2022: 28.1%].

Heavier Retail Trade Weight

MIDF foresees retail trade sales gaining a bigger share post-pandemic, particularly driven by non-specialised stores at 16.6%, specialised stores 98.9%), automotive fuel (4.1%) and food and beverages and tobacco (2.7%).

The research firm said that in 2019, 40.5% of distributive trade sales were contributed by retail trade, with wholesale contributing 48.1% and motor vehicles 11.4%.

Retail trade’s share increased to an average of 43.4% in the first five months of 2023. while wholesale trade’s share declined to 44.6%, while motor vehicles stabilised at 12%. Share of motor vehicles did not change much, said MIDF.

Turning to other countries, MIDF noted that China’s retail trade has expanded by 12.7% y-o-y, marking three straight months of double-digit growth.

“We expect the recovery trajectory to stay robust following a low inflation pressure environment and improving job market as the unemployment rate maintained at 16-month low at 5.2% in May 2023,” it said.

For the Euro area, domestic retail trade stayed in contractionary form for eight straight months, while in the United States American retail spending grew at a lower pace of 1.6% y-o-y. On a monthly basis, the local trade rebounded by 0.3% m-o-m. However, MIDF said the latest monthly gain was below market expectations of 0.4% m-o-m.

Nonetheless, MIDF maintained its retail trade forecast at 15.3% for 2023, compared with 23.9% for 2022.

Source: The Edge Markets

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