Consumers to continue powering 2H26 demand 

PETALING JAYA: Distributive trade sales, a measure of activity across the retail, wholesale and motor vehicle businesses, are expected to remain a key support for domestic demand in the second half of 2026 (2H26) despite normalising household spending.

Kenanga Research, which maintained its 2026 distributive trade growth forecast at 8.1%, compared with 5.6% in 2025, said resilient employment, income growth and tourism would continue to provide support.

It noted that latest retail and wholesale data showed activities had moderated less than initially expected.

“Retail and wholesale trade have moderated less than initially expected, pointing to a reasonably firm domestic demand entering 2H26,” it said.

The research house sees some upside risk to its forecast, backed by stronger tourism-related spending, a resilient labour market and spillovers from export-oriented industries.

However, three consecutive months of slower growth have kept it cautious, particularly as motor vehicle sales remain volatile due to several underlying factors.

It also retained its 2026 gross domestic product (GDP) growth forecast at 5.3%, compared with 5.2% in 2025, saying recent data suggested the economy entered the second half from a position of strength.

“Growth should moderate in 2H26 as consumer spending normalises and global uncertainties linger. Still, resilient domestic demand should continue to cushion the economy,” it said.

TA Research similarly expects domestic spending to remain on a positive footing, although momentum is gradually normalising after stronger expansion earlier in the year.

It said the moderation in headline distributive trade index (DTI) growth was broad-based, while retail activity remained relatively steady and motor vehicle sales continued to recover on a monthly basis.

For the first seven months of 2026, DTI expanded by an average of 4.7% year-on-year (y-o-y), with retail trade growing 4.4%, wholesale trade 5.2% and motor vehicle activity 4.9%.

This suggests domestic demand remains reasonably broad-based rather than being driven by a single spending category.

It expects household spending to remain an important growth anchor in the second half, supported by stable labour-market conditions, income growth and manageable inflation.

However, consumption growth is likely to become more measured as households adjust to higher living costs and external uncertainty.

TA Research maintained 2026 private consumption growth forecast at 4.8%, while warning that risks are slightly tilted to the downside if elevated global energy prices persist or subsidy rationalisation leads to a faster pass-through to household costs.

Phillip Capital Research also expects labour-market conditions to underpin retail and wholesale activity, with sustained private consumption supporting broader economic growth.

In July 2026, Malaysia’s unemployment rate remained low at 3%, while total employment continued to trend higher.

Wage growth in the manufacturing sector, however, eased slightly to 2.8% y-o-y from 3.1% in June.

Still, Phillip Capital expects wage growth to strengthen in the coming months alongside an accelerated expansion in the manufacturing sector.

“Overall, stable employment and wage growth should continue to support retail sales activity,” it said.

BIMB Research was more upbeat, maintaining 2026 distributive trade growth forecast at 8.6%, supported by stronger-than-expected wholesale activity, resilient retail spending and improving vehicle sales.

“The broad-based strength in both business and consumer spending reinforces our view that Malaysia’s economy remains on track to grow by 5.5% in 2026, with third-quarter 2026 GDP likely staying above 5%,” it said.

It expects growth to moderate as inventory restocking normalises, but sees domestic demand remaining supported by a stable labour market, low inflation, rising real incomes and a stronger ringgit.

The latest data showed distributive trade sales eased for a third straight month to 9% y-o-y in July, from 10.1% in June, marking the slowest pace in five months.

On a month-on-month basis, however, sales rebounded 1.2% after contracting for two consecutive months, while sales value rose to RM170.5bil from RM168.5bil and remained above the year-to-date monthly average of RM167.2bil.