KUALA LUMPUR: Malaysian retail sales fell by 11.9% in the second quarter of this year (2Q15) compared with the same period last year, as the combined impact of the goods and services tax (GST) and weaker ringgit hit sentiment, Retail Group Malaysia (RGM) said.

In a report yesterday, RGM said it has cut its 2015 full-year retail sales growth forecast for the fourth time to 3.1%, from 4% previously, following the 2Q data.

The 3.1% growth is expected to translate into retail sales of RM97.8 billion this year, inclusive of the GST, compared with RM94.9 billion in 2014. 

“This latest quarterly result was the worst quarterly retail growth rate since the Asian financial and economic crisis in 1998. The negative impact of the GST on Malaysia's retail industry was worse than anticipated,” said RGM.

RGM obtained its industry data from Malaysia Retailers Association (MRA) members who have been contending with the GST since its implementation in April this year.

RGM said the 11.9% contraction in 2Q retail sales was also way below the average contraction rate of 3% forecast by MRA members in June 2015.

“All retail subsectors suffered declines in their retail businesses during the second quarter of 2015, due to the implementation of the GST,” said RGM.

It also noted that the current political development in the country is affecting retail sales indirectly.

“The recent political situation is affecting the consumer sentiment level and buying mood of Malaysian consumers. As a result, they are spending less,” said RGM.

MRA members are anticipating a growth rate of 0.1% for 3Q15. However, RGM is more optimistic, projecting growth of 2.5%.

“The weak ringgit is affecting costs of goods due to higher import costs. Higher import costs are affecting all retail sectors, from grocery stores, restaurants, fashion stores, furniture stores, electrical and electronics stores, etc.

“Higher retail prices will be more apparent by the fourth quarter of this year. By then, Malaysian consumers' purchasing power will decline further,” said RGM.

For 4Q15, the estimated retail growth rate has been revised downwards to 6% from 6.9% projected in June 2015,  compared with the same period in 2014.

The ringgit fell 0.8% to 4.2455 against the US dollar yesterday, according to prices from local banks compiled by Bloomberg. It reached a 17-year low of 4.2990 on Aug 26.

This article first appeared in digitaledge Daily, on September 4, 2015.