Private consumption to drop sharply, mainly due to MCO

  • Economy
  • Friday, 10 Apr 2020

A police roadblock along Federal Highway during the MCO. - SAM THAM/The Star

KUALA LUMPUR: Growth in private consumption will likely drop sharply, due mainly to the movement control order (MCO), which was imposed since March 18 following the Covid-19 pandemic, BIMB Securities Research said.

In a report issued on Friday, it said from a short-term point of view, flagging consumer sentiments due to the virus outbreak will weigh on private consumption.

“Private consumption growth will need time to normalise as households will likely be impacted from possible temporary shocks to their incomes and a slight erosion of purchasing power.

“In the near to medium term, households are also likely to be cautious on their spending due to the uncertain employment situation, ” it said.

Over the longer term, BIMB Research said there was a likelihood of dampen global conditions in the first half of 2020.

Consumption spending is therefore expected to take a hit, it noted but the Economic Stimulus Package (ESP) could help mitigate some of the impact of the Covid-19 outbreak on consumption.

“Until we see Covid-19 fading away and effective implementation of the stimulus packages, the revival of consumer confidence will likely only happen in late 2020. Hence, growth in private consumption is expected to weaken in 2020, ” it said.

At midday, the Statistics Department announced distributive trade growth grew by 5.5% year-on-year (yoy) to RM109bil in February 2020, this was slightly higher than 5.4% yoy growth in the preceding month.

At 4pm, Prime Minister Tan Sri Muhyiddin Yassin announced the MCO would be extended by another two weeks to April 28.

Both wholesale and retail trade recorded a slower growth at 5.1% yoy and 6.4% yoy (January 2020: 5.2% and 6.7%) respectively. On the other hand, significant increase was observed in motor vehicle sales which jumped to 3.7% yoy (Jan: 1%).

As for retail sales, they grew by RM2.7bil or 6.4% yoy to RM45.3bil, the least since September 2015.

The expansion was fuelled by retail sale in non-specialised stores (Feb: 7.5%; Jan: 8.1%) and retail sale of other goods in specialised stores (Feb: 7.6%; Jan 8.3%).

Wholesale trade generated sales value of RM52.7bil in February, increased RM2.4bil or 5.1% yoy.

On monthly basis, sales value of distributive trade decreased RM5.6bil or -4.9%, faster when compared to -0.9% decline in January.

Monthly sales of retail trade declined 3.3% whilst sales value of motor vehicles was lower by -9.3%. Sales of wholesale trade also declined 5.2% mom.

Volume index of wholesale & retail trade grew 5.4% yoy to reach 127.9 points. The key contributor for this growth was retail trade with 6.4%.

This was followed by wholesale trade (4.9%) and motor vehicles (3.6%). As for seasonally adjusted volume index, it declined 0.6% mom.

BIMB Research said given the ongoing coronavirus situation, circumstantial activities are indicating retail sales will be low in the coming months, with consumers purchasing essential items only.

“The MCO to curb the spread of Covid-19 will have a severe effect on retail sector, with ripples likely to continue even after the order has been lifted. The MCO would also affect the cash flow of retailers in maintaining their businesses. Therefore, retail sales growth rate for the first half of 2020 may fall further, ” it said.

The research house quoted Retail Group Malaysia (RGM) as predicting Malaysian retail sales will contract by 3.9% yoy in 1Q20.

To recap, at end-2019, RGM projected 4.6% growth rate in Malaysia retail industry for 2020.

“However, RGM is unable to establish the likely retail industry growth rate for 2020 because of the ongoing and unpredictable changes relating to the Covid-19 outbreak and the new ruling government policies.

“In 4Q of last year, Malaysia’s retail sales increased 3.8% yoy. This brings the full-2019 retail sales growth to 3.7%, compared with 2018’s 3.9%, ” it said.

BIMB Research said going forward, retail sales will likely continue to fall in coming months as Covid-19 concerns intensifies. The unpredictable changes of the Covid-19 could dampen retail industry growth figure further.

“No one can say how long the Covid-19 pandemic may last, and containment may take longer than currently projected. The possibility of severe financial turmoil and financial crises cannot be discounted.

“The negative effects of Covid-19 outbreak and MCO are greatly felt by the rakyat and business community. Hence, it is hoped that the proposed measures under Economic Stimulus Package will be able to spur the economy going forward, ” it said.

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