Various initiatives introduced by the Malaysian government to boost private consumption - which include increasing salaries of civil servants, introducing a new minimum wage law, and cash handouts to low-income households - have so far failed to reignite household spending. According to a report published by Retail Group Malaysia (RGM), the country recorded weaker-than-expected retail sales growth of 6.9% year-on-year (y-o-y) in Q112, well under the industry's initial estimate of 12.1%. RGM also noted in the report that retail sales growth is expected to slow to 5.5% y-o-y in Q212. This is in line with our view that uncertainties over the outlook for employment in the export sector, due to a slowdown in global demand, will continue to weigh on consumer sentiment and prompt households to cut back on consumption.
|Cutting Back On Consumption|
|Malaysia - Outstanding Credit Card Balances, % chg y-o-y|
Further supporting our view that the retail sector is likely to continue to suffer from tepid domestic demand over the coming months, we note that growth in outstanding credit card balances have remained on a steady slowdown in recent quarters. As the accompanying chart shows, growth in outstanding balances has slowed from a monthly average 10.8% y-o-y in 2011 to an average of 6.0% in H112 (4.6% in the month of June). This suggests to us that consumers are becoming increasingly concerned of their ability to take on further credit card debt, given the deteriorating outlook for employment. Consequently, unless we see an improvement in global economic conditions, we believe that consumers will continue to pull back.
Although we expect this trend to persist over the coming months, we believe that the retail sector as a whole is in a much better shape compared to the export sector. Indeed, given that the current slowdown in Malaysia's economic growth is largely attributed to external economic headwinds, we expect the retail sector to remain relatively more resilient over the coming months. Nonetheless, we are forecasting Malaysia's real GDP growth to come in at a subdued 3.8% for 2012.