PETALING JAYA: The consumer sector is anticipated to maintain its stability heading into the second quarter of financial year 2026 (2Q26), notwithstanding the energy crisis and uncertainties arising from the Middle East conflict, say industry experts.
An analyst with a local bank-backed brokerage firm said 2Q26 should be generally supportive for Malaysian consumer stocks, adding however that the pace of growth may ease in light of the global economic uncertainties.
“Domestic consumption remains a key driver of the economy, with gross domestic product (GDP) expected to expand around 4% to 5%, so overall demand is still holding up,” he told StarBiz.
The International Monetary Fund announced last month that it had raised its projection for Malaysia’s real GDP growth to 4.7% for 2026, representing an upward revision of 0.4 percentage points.
Going into 2Q26, another analyst said retail sales are anticipated to grow – albeit more slowly – indicating that consumers are becoming more selective with spending.
“The first half of financial year 2026 (including 2Q26) is likely to capture the tail end of stronger consumption momentum before things level off later in the year,” she said.
Former investment banker Ian Yoong believes that the retail store segment will be “the star of the consumer sector” in 2026.
“The retail sector is insulated from most of the cost increases of the higher oil price, as logistic vehicles still enjoy diesel at subsidised prices.”
He acknowledged that labour cost pressures have been impacting the consumer sector, as with other sectors.
“The retail store segment has been more successful in navigating higher wages and tighter hiring conditions by increasing automation, such as via automated storage and retrieval systems (or ASRS) warehousing and self-checkout systems.”
ASRS refers to computer-controlled inventory management systems that automate the storage and retrieval of unit loads for picking, packing, and shipping.
Yoong said automation in the food and beverage manufacturing segment is more expensive and technically difficult to implement.
“The cost of installing robots is still exorbitant. The most important factor is pricing power.
“While brand equity is still important in determining the pricing power of upstream players in manufacturing the food and beverage products, the major strength lies with large retail chains.
“These retail chains have the ability to leverage economies of scale. This enables them to significantly reduce costs and offer lower prices than small competitors and mom and pop stores.
“The other major competitive edges are supply chain efficiency and brand recognition,” he said.
Another analyst said there are still several tailwinds in place for the local consumer sector.
“Inflation remains relatively contained, which helps protect purchasing power, and government support measures such as subsidies and cash aid continue to cushion households.
“A steady labour market and ongoing tourism recovery are also supporting discretionary spending, while retail expansion activity suggests confidence in the sector,” he noted.
Malaysia’s inflation ticked higher in March 2026, driven largely by rising fuel prices, while wholesale and retail trade growth moderated amid weaker vehicle sales, according to the monthly highlights from Bank Negara Malaysia.
Headline inflation rose to 1.7% year-on-year in March from 1.4% in February, while core inflation increased to 2.1% from 2%.
Centre for Market Education chief executive officer Carmelo Ferlito said inflation in the 1Q26 remained relatively moderate and broadly in line with expectations.
“Headline inflation was contained, with the true underlying price dynamics remaining hidden and difficult to really identify because of price controls and subsidies, particularly in fuel and selected essential goods.
“Looking ahead to the second quarter, prices in Malaysia will face some upward pressure, particularly from external factors such as energy prices and global trade disruptions, including developments linked to the Strait of Hormuz.”
Meanwhile, RHB Investment Bank analyst Soong Wei Siang said the consumer sector is still a safe shelter despite market turbulence.
“Notwithstanding the energy crisis and uncertainties arising from the Middle East conflict, the sector should maintain a high degree of resiliency thanks to the domestic-centric earnings base and government subsidy support.
“Accommodative fiscal policy via cash handouts and subsidies should anchor consumer spending and contain inflationary pressures,” he said in a recent research note.
Soong said the conflict’s implications to the consumer sector include inflationary pressures (spillover effects from higher energy and transportation costs); supply chain disruptions (shortages of raw materials or key inputs); and consumer sentiment dampening (concerns on income/job outlook and rise in living costs).
“Thus far, cost increases have set in but not in an alarming manner, whilst the supply chain disruptions occurred are largely isolated.
“Broadly, consumer sentiment could turn more subdued, leading to a cautious spending pattern and downtrading, but the continuation of the petrol subsidy commitment should limit the downside.”
Meanwhile, Yoong anticipates that the Visit Malaysia 2026 campaign will be the primary catalyst for sales growth on a quarter-on-quarter basis (1Q26 versus 2Q26).
“Channel checks indicate that consumer sentiment has improved following the US tariff action becoming a back story, while a stronger ringgit will be a panacea for consumer stocks with high import content.
“A strong ringgit will of course reduce the cost of imported finished goods, which will be positive for retail store operators - but negative for domestic manufacturers.”
Here, a major negative will be the significant increase in plastic packaging cost, Yoong said.
“The profitability of listed consumer companies involved in manufacturing will most likely be impacted.
“Retail store operators on the other hand will most likely report positive growth in earnings.
“The stocks of retail store operators have generally outperformed this year and are, in my view, close to fair valuations.
”At the sub-sector level, another analyst said staples and mass-market retailers are likely to hold up best, along with companies that can maintain pricing power.
“Mid-tier discretionary names may see steady but unspectacular performance, while higher-end or big-ticket segments could face more pressure.
“Overall, the outlook for 2Q26 is moderately positive but less dynamic, with the focus shifting toward steady earnings and more selective opportunities rather than broad-based growth.”
