Malaysia Retail Report Q4 2015
BMI View: A series of economic changes are set to impact the Malaysian retail sector negatively in 2015.Decline of oil price made the government to introduce Goods and Services Tax in April in attempts todiversify its sources of income. Fuel subsidies have been removed, ringgit is on a decline against US dollarand consumers' budgets are becoming tighter. As a result, growth in the Malaysian retail sector will slowdown in 2015-2016.
As a highly oil & gas dependent country, Malaysia has been hit by the changing oil price landscape in 2015.Fossil fuels directly contribute to 30% of all government revenues in Malaysia and a 40% drop in oil pricein 12 months requires the country to rebalance its budget. First, fuel subsidies were removed allowing petrolprice to rise. Consumers and businesses are facing higher transportation costs, and due to inelastic nature ofdemand for petrol, Malaysians will see their disposable incomes decline in 2015-2016. Second, thegovernment moved further in rebalancing the budget and introduced a Goods and Services Tax (GST) inApril 2015. Most of the retail products qualify for the new 6% tax which is in turn squeezing profit marginsfor retailers and decreasing the purchasing power of Malaysian wages. As a result, consumer sentiment fellto a six-year low in July 2015, according to the Malaysian Institute of Economic Research. The holy monthof Ramadan, which typically generates large volumes of sales as stores launch promotions in order to attractcustomers, was disappointing for retailers, some of whom faced 20% declines in sales compared with lastyear. Consequently, we forecast that total household spending will have fallen by 5.2% in US dollar termsby the end of 2015.
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