THE possibility of a recession next year is high despite retail sales having returned to pre-Covid 19 levels, said the Retail Group Malaysia (RGM).

The group said the slowdown in major global economies will affect the export growth of Malaysia, in turn affecting take-home pays and consumer spending in the country.

Putrajaya needs to prepare to take swift action to cushion the negative impact on the country, RGM said.

Its managing director Tan Hai Hsin said the negative impact may become obvious in the last quarter of this year.

This, he said, is due to the weaker ringgit in the last few months, which has led to higher cost to import raw materials and semi-finished goods used to make consumer products in Malaysia.

“It has also led to higher prices of imported finished goods. This has resulted in retail prices of many goods costing more now.

“Malaysians have yet to feel the pinch now as their take-home pays have yet to be affected,” he told The Malaysian Insight.

Tan said that despite external factors, consumer spending is still going strong.

“The United States is in technical recession while European countries are facing an energy crisis and China has been slow in its recovery due to strict covid-19 policies.”

“All these will slow down the economic growth of Malaysia by the 4th quarter of this year as well as the first half of next year.”

According to RGM, for the second quarter of 2022, Malaysia’s retail industry recorded an all-time high growth rate of 62.5% in sales, as compared to the same period in 2021.

Tan attributed this to three main factors - the recent Hari Raya festivities, relaxation of Covid-19 standard operating procedures (SOPs) as well as the closure of many retail shops in May and June last year.

“The relaxation of many Covid-19 SOPs from April 1 encouraged more Malaysians to return to their usual shopping behaviour and patterns.”

“There was no more restriction in the operation hours of retail shops, while full capacity was allowed for events and activities involving large groups.”

“Unboosted recipients and senior citizens were allowed to enter shopping centres as well as to dine-in eateries.”

Tan said there has not been a clear sign of a slowdown in consumer spending.

He, however, said the high growth rates for the first three quarters of this year are unprecedented.

“It is unlikely to happen again. The high growth rates in 2022 are considered a one-off yearly occurrence.”

“It will never happen again unless shops are forced to close down again in the future for an extended period of time (lockdown).”

Malls seeing high traffic

As for shopping malls, Tan said they are seeing high foot traffic but consumer purchasing power may have dropped due to the higher cost of living.

“Malls are still crowded, especially on weekends. We still see consumers buying non-essential goods as well as patronising up-market cafes and restaurants.

“But, Malaysians are always seeking out discounts and offers by retailers and F&B operators. They are trying to maintain the quality of their lives.”

Tan said despite shopping traffic returning to 2019 levels, occupancy and rental rates in shopping centres have not, as a full recovery will only take place in 2023.

“New shopping centres that opened during the last few years will continue to struggle to secure new tenants and to achieve high occupancy rates.”

“Shopping centres that have been suffering from low shopping traffic will continue to face the same challenges in the second half of this year.” – September 18, 2022.