KUALA LUMPUR (Oct 13): If the government decides to raise minimum wage levels next year, it will be a boost for domestic demand, said MIDF Amanah Investment Bank Bhd Research.

In an economic review note today, the research house said distributive sales growth started to pick up in the third quarter of last year after minimum wage rose to RM1,000 from RM900 in Peninsular Malaysia, and to RM920 from RM800 for Sabah, Sarawak and Labuan.

"Therefore, we opine further hike in minimum wage will give significant impact on Malaysia's economy, in particular via domestic demand," it said.

The research house added that distributive trade rose strongly by 9.8% y-o-y in August, driven by continuous robust expansion in sales of wholesale trade, which grew 8.9% y-o-y, and retail trade, which rose 13.4% y-o-y.

It also said August's solid distributive trade statistics reflect an upbeat trajectory in Malaysia's domestic demand, which it expects to continue until the end of the year.

"As exports surprised the market by growing at 21.5% y-o-y in August, the follow-through effects are, among others, in the form of manufacturing sales. In tandem with exports performance, manufacturing sales [went] up by 16.5% y-o-y, [marking] nine consecutive months of double digit [growth]," it said.

"We believe the strong performance in external trade translates into better sales, employment and most importantly improvement in domestic spending," it added.

Meanwhile, MIDF said it expects private consumption and the services sector to grow by 6.3% and 5.3%, respectively, for 2017.

"Continuous solid performance of distributive trade in August 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 to last year, in particular via private consumption and services sector," it said.