Retail resilience versus rising risks

THE prevailing view this year is that Malaysia’s economy will hold steady, driven largely by strong domestic consumption.

According to a report by AmInvestment Bank Bhd, the consumer sector – especially retail and essential goods – has stood out as a key area of strength, showing remarkable resilience in the face of global supply chain disruptions, external market volatility and geopolitical tensions.

“Steady consumption, stable employment, and ongoing government subsidies have further supported spending,” the report notes.

This positive momentum has also been buoyed by a wave of robust private investments, including significant foreign inflows.

Fast forward to today, that rosy outlook has become somewhat clouded by rising uncertainties and shifting economic winds.

The same report shows that market sentiment turned cautious following US President Donald Trump’s Liberation Day, as recession fears loomed, causing the FBM KLCI to drop from its 2025 peak of 1,641 to a year-to-date low of 1,386.

And rightly so – between tariffs and trade wars, geopolitical realignments, and technological disruptions, no one seems able to predict what’s next.

To add to that, central banks are playing a delicate game of “raise or pause” with interest rates. Inflation remains stubborn in many countries, making it difficult to predict borrowing costs, investment returns, or consumer spending behaviour.

Spending behaviour

The key question is: if there are so many uncertainties, will Malaysians really continue spending? Or are there signs that the consumer sector is slowly but surely weakening?

Maybank Investment Bank Research (Maybank IB) analyst Jade Tam says that, particularly after the pandemic, consumers have been downtrading to more affordable options.

At the time of writing, the Bursa Malaysia Consumer Products and Services Index was at 496.50 points, having fluctuated over the past three months.

It reached a 12-month low on April 9, registering 457.26 points.

“It is an ongoing trend. Right now, if inflation and tariffs begin to put more pressure on people’s disposable income, then it is highly likely this trend will continue,” Tam tells StarBiz 7.

On a more positive note, Tam says that prices of consumer goods in the country have not significantly changed as a result of recent tariffs, so affordability has remains relatively stable.

“However, consumers may be tightening their purse strings on non-essential or big-ticket items and saving more to prepare for the impact of tariffs on their disposable income later on.”

Should spending tighten, Tam notes that the most vulnerable segment would be consumer discretionary goods, before any downturn affect consumer staples.

However, Maybank IB economist Azril Rosli says consumer spending and behaviour have indeed been affected, though not in a negative way for individual consumers. He notes that Malaysia recorded firmer retail trade volume growth in the first two months of 2025.

Retail trade volume grew 5.4% year-on-year (y-o-y), compared to 4.2% growth in the fourth quarter of 2024 and 4.4% growth for the full year of 2024.

“We noticed a general increase in savings deposits. For the first two months of 2025, the average savings deposit increased by 2.4% y-o-y, higher than the full-year 2024 average growth of 0.7%,” Azril explains.

He adds that the rebound in savings growth has been evident since April 2024, following a full-year decline recorded in 2023.

Higher savings

Interestingly, the trend of higher savings growth mirrors the pattern seen between 2020 and 2021, when double-digit increases were recorded during the Covid-19 pandemic, most likely due to precautionary savings.

Furthermore, Azril says the latest data revealed a notable inverse relationship between savings and spending in Malaysia from 2024 to 2025.

As savings growth turned positive, credit card spending growth moderated, signalling a transition from post-pandemic recovery spending to a more cautious financial approach.

“Consumer sentiment indicators suggest Malaysians are adopting a wait-and-see approach rather than dramatically altering spending patterns.

As such, an interesting thing to note is a form of ‘selective spending’ where consumers maintain expenditure on services and experiences like restaurants and domestic tourism, while becoming more price-conscious on imported durable goods,” he adds.

This is likely one reason why inflation in restaurant and accommodation services, though moderating to 2.9% in March 2025, remains higher than overall inflation.

To sum up, Azril notes that because inflation has remained relatively contained, consumers have not yet fully felt the impact of international trade tensions.

“But businesses are reporting increased inventory building of imported goods as a hedge against future tariff implementation, indicating anticipatory behaviour throughout the supply chain that may eventually influence consumer prices in the coming quarters.”

When asked about the likelihood of consumers feeling the effects of reciprocal tariffs, Azril says it will indeed take some time.

“Supply chains typically absorb initial shocks before passing costs downstream, creating probably one or two quarters’ lag before it will have full effect on consumers,” Azril explains.

Overall, he says the acceleration in retail trade volume during early 2025 indicates a strengthening in consumer spending, supported by Budget 2025 initiatives, including wage hikes and minimum wage implementation.

Challenging environment

BIMB Research analyst Saffa Amanina says it is still too early to determine whether the prevailing uncertainties will directly impact consumer behaviour.

According to Saffa, there are early signs of a shift from premium to value-for-money products.

In simpler terms, consumers are now looking for the most affordable products that still meet acceptable quality standards.

She cites Amway, the world’s largest direct-selling company, as a case in point.

The brand, which operates a premium healthcare direct-selling business, reported a y-o-y topline contraction of -13.6%, indicating weaker demand for higher-end offerings.

In contrast, value-oriented retailers such as MR DIY Group (M) Bhd, Padini Holdings Bhd, and AEON Co (M) Bhd have benefited from this trend, maintaining low single-digit y-o-y topline growth.

“Consumers appear to be recalibrating their spending habits towards affordability in response to rising cost-of-living pressures,” she notes.

“Looking ahead, we believe domestic consumption will be supported by factors such as the minimum wage hike, civil service salary adjustments, and withdrawals from Employees’ Provident Fund Account 3.”

Still, the road ahead is not without challenges.

Some may question whether this momentum can be sustained throughout the year.

Saffa reckons domestic issues such as the potential floating of RON95 petrol prices could have a more immediate and significant impact on consumer sentiment than external trade wars.

“As of March 2025, the IPSOS Consumer Confidence Index showed a 5% month-on-month improvement, indicating continued consumer resilience despite the underlying uncertainties,” Saffa states.

It remains to be seen whether domestic spending continues to be the trusty engine of Malaysia’s economy. But for now, the signs are promising, with malls buzzing and new eateries launching each week.

If consumer spending does falter, Malaysia will need to pivot – diversifying into high-value industries, boosting exports, and fine-tuning policies will be crucial to keeping investors confident.