PETALING JAYA: The retail sector is bound to face a challenging near-term outlook with ongoing geopolitical uncertainties, moderated consumer spending and rising operating costs weighing on both demand and margins.
Retail Group Malaysia (RGM) maintained its 4% annual growth rate of retail sales, moving deeper into 2026.
RGM highlighted the recent geopolitical tensions that have had some impact on the industry’s overall retail prospects.
“The US-Israel strikes on Iran that began on Feb 28 have brought growing uncertainty on the economic prospect of Malaysia in 2026,” it added.
“This Middle East conflict has contributed to rising energy prices, severe supply-chain disruption and surging logistics costs.
“Manufacturers in Malaysia have to deal with higher input costs and weaker demand from major export markets,” RGM pointed out.
Managing director of RGM, Tan Hai Hsin, told StarBiz yesterday that it “is worrisome at the moment”.
“Non-subsidised fuel prices have risen significantly this week, which will affect operation costs of most businesses from manufacturing to distribution.
“Business owners will likely pass these extra costs to end-consumers, and Malaysian consumers will face a higher cost of living from next month.”
Tan further remarked that retail margins and demand in 2026’s outlook is not looking good.
“Margins of many retail businesses are already thin,” he said, highlighting both the retail and food and beverage (F&B) sectors are set to face higher food and operational costs.
“Many retailers will likely pass these costs to their shoppers and diners, gradually over a few months, which will result in lower demand for retail goods and services in the next few months due to higher retail prices,” Tan said, reiterating his sentiment from the manufacturing and distribution sectors.
Across F&B outlets, RGM noted growth underperformed at a 3.1% rate during the fourth quarter of 2025, falling below the association’s expectations of 5%.
“For 2026, higher food prices (raw materials and food ingredients) and higher operating costs (shop rental and staff cost) will remain the key struggles for F&B operators in Malaysia.
“In spite of the two major festivals and higher tourist activities, cafe and restaurant operators are expecting their businesses to grow at a slower pace of 1.9% during the first quarter of 2026, as compared to the same period last year,” RGM said.
RGM pointed out that for the whole year, this F&B sub-sector achieved a growth rate of 3.7%.
On the inflationary front, the government is expecting the inflation rate to rise between 1.3% and 2% in 2026, RGM said.
Senior economist and executive director of United Overseas Bank (UOB) Group Research Malaysia, Julia Goh, said: “The government support measures and fuel subsidies under BUDI95 have provided cushioning for retail growth.
“That said, we remain cautious, as the impact of recent energy shocks and their pass‑through to costs and inflation is likely to become more evident from next month onwards.”
As such, Goh said a projected retail sales growth of 4% growth is achievable, but conditional on oil prices stabilising and subsidy buffers holding.
Goh further noted the temporary volatility should be manageable, given the government has said that subsidised fuel prices and fuel supplies are sufficient until May.
“However, a prolonged supply shock would soften overall retail growth and tilt spending towards essentials,” she added.
Looking ahead, Goh said overall, domestic demand remained resilient and services-led with strength coming from travel, accommodation, transport and seasonal spending.
“There were some one-off factors that lifted goods spending last quarter, particularly on vehicles due to the expiry on electric vehicle tax exemptions for imported cars and road tax holidays.
“But generally, goods spending remains selective (everyday essentials over big-ticket items).
“Hence, we see underlying consumption to be resilient, just reallocated across categories,” she explained.
