PETALING JAYA: Malaysia’s consumer- driven economy is expected to gain traction in 2025, underpinned by resilient domestic consumption and a steady uptick in retail activity, despite pockets of pressure from potential fuel and electricity subsidy reforms.
Data from the Statistics Department showed the country’s distributive trade index (DTI) grew by 3.9% year-on-year (y-o-y) in February to reach 157.1 points – a marginal improvement from January’s 3.8% y-o-y increase.
Distributive trade sales accelerated to 5.1% y-o-y, amounting to RM148.3bil, up from 4.6% in the previous month.
Although the index slipped 0.6% month-on-month due to fewer working days, the broader trend remains encouraging.
TA Research noted that “the sustained growth in the DTI indicated that personal spending would remain a key contributor to overall gross domestic product (GDP) growth in the first quarter (1Q25).”
The research house expects private consumption to grow by 4.5% y-o-y in 1Q25, lifted by holiday-related spending during the Chinese New Year and Hari Raya celebrations.
“Overall, private consumption is expected to remain the primary driver of economic growth, with a projected expansion of 5.5% in 2025 compared with 5.1% last year,” TA Research said, pointing to a resilient labour market, steady income growth and contained inflation as key enablers.
BIMB Research also projected robust growth in consumer activity, forecasting retail trade to expand by 6.6% in 2025.
“We anticipate sustained growth in domestic consumption, underpinned by government cash transfers, phase one of the civil servant salary revision effective since December 2024, and the increase in the minimum wage from RM1,500 to RM1,700 per month,” it said.
The positive labour market conditions further reinforced this trend.
“Notably, the unemployment rate stood at 3.1% in February 2025, the lowest level in a decade, reflecting strong labour market dynamics,” BIMB Research added.
This upbeat consumer sentiment is expected to flow through to the broader distributive trade sector.
BIMB Research anticipated distributive trade sales to grow 6% in 2025, comprising a 7.4% rise in motor vehicle sales, 5% in wholesale trade and 6.6% in retail trade.
TA Research highlighted that spending momentum could benefit from an extra lift from Malaysia’s Asean chairmanship this year.
“Consumer spending is also likely to receive an additional boost from higher civil servant salaries, minimum wage increase and rising tourist arrivals, particularly benefiting the retail, food and beverage, and leisure sectors.
“Malaysia’s Asean chairmanship in 2025 could serve as an additional catalyst, attracting more business activities, international events, and increased spending, particularly in urban centres and hospitality-related industries,” it noted.
However, some downside risks may temper this outlook.
BIMB Research warned that “the consumer sector may face headwinds from the retargeting of RON95 petrol subsidies and proposed electricity tariff hikes, which could elevate living costs and dampen consumer sentiment.”
“A well-planned and gradual implementation of the subsidy reforms could mitigate their impact and help preserve spending momentum,” it stated.
TA Research also flagged potential risks from subsidy rationalisation.
“The rationalisation of the RON95 subsidy remains a key downside risk, as higher fuel costs could erode disposable income and weigh on discretionary spending.
“While the risk of inflationary pressure persists due to potential supply shocks, allowing fuel prices to float amid such uncertainty would be questionable,” it said.
Nevertheless, the research houses said strong fundamentals should provide a cushion against the shocks.
“Additionally, ongoing government support through targeted cash assistance, continued wage growth, and a resilient labour market should provide a buffer against these cost pressures,” BIMB Research said.
