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KUALA LUMPUR: Malaysia's retail momentum may remain healthy this year, despite global trade headwinds, following a robust growth in the first three months, industry observers said.
This will be supported by structural drivers such as civil service pay hikes, minimum wage adjustments, cash assistance and tourism recovery.
The factors are poised to enhance disposable income and drive steady consumption growth, they added.
Sustained Robust Growth
Retail sales expanded 6.6 per cent year-on-year (YoY) to RM66.98 billion in March compared to a 5.9 per cent growth in February, driven in part by elevated festive spending ahead of Hari Raya Aidilfitri.
This lifted cumulative retail sales to RM198.26 billion the first first quarter of 2025, up 6.9 per cent YoY from RM185.47 billion in the same period last year, underscoring sustained strength in domestic consumption.
Analysts at MIDF Research said the retail sales growth was broad-based across key segments, with F&B and tobacco sales rising 8.1 per cent YoY, household equipment up 5.8 per cent and non-specialised stores expanding 6.5 per cent.
On a monthly basis, retail sales rose 2.8 per cent month-on-month (MoM), marking a sequential recovery after February's seasonal dip.
"These trends reaffirm the sector's resilience, anchored by strong demand fundamentals and festive-driven spending," they said.
Tourism Boost
An economist specialising in Southeast Asia Doris Liew said tourism recovery could provide a temporary boost, although the sector is still vulnerable to global headwinds.
A continued surge in tourist arrivals, which is set to lift footfall across retail, and food and beverage channels.
Liew, however, said should global economic conditions deteriorate, discretionary travel is likely to decline.
"Malaysia could diversify its strategy by targeting higher-spending visitors, such as digital nomads and high-net-worth individuals.
"However, current visa regimes remain complex and uncompetitive, pushing these groups toward destinations like Bali, Thailand and Vietnam, which is a missed opportunity for Malaysia's domestic economy," she said.
Malaysia's tourism sector is off to a strong start in 2025, sustaining the solid momentum seen throughout 2024.
MIDF Research said the country welcomed 4.3 million international tourists in the first two months of 2025, a 16.2 per cent YoY increase, underscoring sustained demand from key regional markets.
Arrivals from China and India surged 33.9 per cent YoY and 34.2 per cent YoY respectively, reflecting the positive impact of visa-free entry initiatives.
A continued surge in tourist arrivals is set to lift footfall across retail and food and beverage channels, the firm said.
Support For Future Consumption
Liew said labour market conditions and wage growth are essential in supporting future consumption.
"Unfortunately, wage growth in Malaysia remains sluggish. The share of national income going to labour has declined over the years, now falling below 40 per cent, with capital capturing the lion's share of gross domestic product.
"As a result, the primary driver of the economy, that is consumer spending, is increasingly constrained. This calls for a structural rethink of how income is distributed and how domestic demand is supported," she added.
Liew pointed out that over-reliance on consumer spending in the absence of real income growth is also risky as it fuels household debt and creates an unsustainable growth model with a ceiling.
"Worse still, if households lack adequate savings, future shocks, such as a pandemic or recession, could trigger a cascade of financial instability, both at the household and fiscal level.
"Strengthening wage growth and social resilience is therefore not just desirable, but imperative," she added.
Meanwhile, RHB Investment Bank Bhd senior economist Chin Yee Sian said domestic demand is expected to cushion the economy from potential blows from external challenges.
She said the domestic economy has demonstrated resilience, driven by robust consumer spending and steady investment.
"This should help cushion Malaysia from some risks of heightened headwinds from tariff and trade tensions.
Chin added that certain domestic-oriented industries including retail and consumer goods are relatively shielded from these external uncertainties.
They are largely driven by local demand and are less dependent on the global economic environment.
"These industries primarily serve the domestic market, making them less vulnerable to international disruptions," she said.
Chin added that the retail sector will continue to benefit from an expanding labour market, rising household incomes and adjustments to the minimum wage and civil servant salaries.
Stock Picks
MIDF Research said consumer sector remains a prime beneficiary of the tourism upcycle, which are supported by long-term policy visibility and infrastructure expansion.
The government's decision to extend visa-free travel for Chinese nationals through 2030 is a major structural catalyst.
"The ongoing resurgence in tourist activity is expected to translate into meaningful gains for consumer-facing businesses. We continue to view the consumer sector as one of the most direct and compelling beneficiaries of Malaysia's tourism-led recovery," the firm said.
Fraser & Neave Holdings Bhd, Aeon Co (M) Bhd, Spritzer Bhd and Sabah-based Life Water Bhd are among some brokerage firms' top consumer sector picks.
Kenanga Research, in a recent report, believed F&N may continue to benefit from rising tourism in Malaysia and Thailand, especially with its ready-to-drink (RTD) beverages.
The firm, which has an "Outperform" call on F&N, also likes the company's strategic focus on high-growth halal packaged food and dairy segments.
MIDF Research likes F&N for its leading position in the RTD
beverage segments, which continue to benefit from rising mobility and tourist driven consumption.
Its investments in upstream dairy operations in Gemas and new capacity in Cambodia are expected to strengthen long-term earnings visibility.
Aeon Malaysia, meanwhile, is well-positioned to capture mass-market demand through its wide retail network and remains supported by stable contributions from its property management services segment, with upside
potential from tenant mix optimisation and rental reversions.
Life Water is set to double its bottling capacity by 2027 and stands to benefit from lower packaging input costs amid softer crude oil prices.
Its strategic exposure to Sabah's growing tourism base and rising structural demand for clean packaged water further enhances its growth appeal, MIDF Research said.
Source: https://www.nst.com.my/business/economy/2025/05/1218084/robust-sales-steady-spending