This article first appeared in The Edge Financial Daily on September 14, 2017 - September 20, 2017

KUALA LUMPUR: Malaysia’s distributive trade, as measured by the volume index of wholesale and retail trade, rose 9.4% to 157.7 points in July from 144.1 points a year ago, thanks to higher sales in the retail trade segment.

However, the July figure was down 1.3% compared with June index of 159.7 points, according to the statistics department.

Still, the sales value of wholesale and retail trade in July, at RM96.5 billion, is at three-year high and it represents the fastest growth since March 2014. It is 11.1% more than the RM86.86 billion reported for the same month in 2016.

The July sales value comprised RM45.9 billion in wholesale trade, RM38.3 billion in retail trade and RM12.4 billion in motor vehicle trade.

Sales of motor vehicles soared 9.8% year-on-year (y-o-y), the fastest expansion in two years. Retail trade registered a new record with a growth momentum of 14.1% y-o-y.

“We opine the robust expansion was partly due to softening inflation, sanguine business environment and improved labour market,” MIDF Research said in a note to its clients after the figures were announced.

Describing Malaysia’s strong distributive trade in July as a “good start for the third quarter of 2017”, MIDF Research said the figures provide a positive cue for continuous decent performance in private consumption and services sector seen in the last two quarters.

“The return of positive growth in motor vehicle sales in July, coupled with solid retail trade and wholesale performance, was evidence of sustainability in Malaysia’s domestic spending,” the research firm observed.

“Henceforth, we view the strong momentum in distributive trade will translate into higher growth for private consumption and the services sector for the third quarter of 2017,” it added.

MIDF Research also described the strong July data as a positive spillover effect from the upward trend in external trade activities.

“As exports rose above 30% y-o-y in July, the follow-through effects are among others in a form of manufacturing sales. Exports of manufactured goods cover about 82.2% of our total export products,” the research firm noted.

In tandem with export growth in July, MIDF Research said manufacturing sales soared to its highest, growing by 22.2% y-o-y.

“Thus, employment in the sector increased by 2.9% y-o-y, fastest ever recorded while wage growth of the manufacturing sector expanded solidly by double digits at 11.3% y-o-y,” MIDF Research said, adding that the strong external trade performance will translate into better sales, employment and “most importantly” improvement in domestic spending.

“Besides, with the slowdown in inflation rate, the economic condition gives extra room for domestic consumption to rise steadily in July,” the firm said, expecting “the upbeat momentum in Malaysia’s domestic spending to continue until the end of this year.”

Going forward, MIDF Research forecasts this year’s private consumption and services sector to grow at 6.3% and 5.3% respectively.

“Continuous solid performance of distributive trade in July signals stronger domestic spending is in play, added with strengthening labour market and upbeat momentum in external trade activities will drive Malaysia’s economy into a better position in 2017, compared with last year particularly via private consumption and the services sector,” it added.