KUALA LUMPUR, March 11 — The Retail Group Malaysia has projected an annual growth rate in retail sales of 4 per cent for this year, a hike of a 0.5 per cent point from the projection made in November last year.

According to the Malaysia Retail Industry Report released in March, the biggest challenge for the Malaysian retail industry is the rising cost of living.

In comparison, the retail industry recorded a growth rate of 2.2 per cent for 2023, which was below market expectations as the projection by Retail Group Malaysia in November was 2.8 per cent.

It said the retail industry contracted in the last quarter of 2023 by 0.2 per cent while retail prices, including food prices, continued to rise.

"The Israel-Hamas war that started in early October 2023 had led to boycotts of many western brands with alleged links to Israel or that purportedly pledged support to it,” it said.

"This prolonged boycott had affected businesses of certain retail brands. At the same time, Malaysians switch to support local and other Asian brands,” it added.

The retail sales of different sub-sectors such as the department stores, hypermarkets, supermarkets, fashion, furniture and other specialty retail stores also saw negative growth of between 0.4 per cent to 4.4 per cent last year.

Only the mini-market, children and baby products, pharmacy and personal care sub-sectors recorded growths of between 1.1 per cent (children and baby products) to 11.3 per cent (mini-markets).

"Members of the two retailers’ association project an average growth rate of 7.1 per cent for the Malaysia retail industry during the first quarter of 2024,” it said.

On the projection for 2024, it said the 10 per cent sales tax imposed on imported low-value goods, priced below RM500, sold online had led to higher retail prices on these goods.

It also said the increase in service tax rate from six per cent to eight per cent since March has led to higher prices of retail goods and services.

"This will affect retail spending on essential items, non-essential goods, personal services, general services, cars as well as travelling,” it said in the report compiled and written by Retail Group Malaysia based on data acquired from members of the Malaysia Retailers Association and Malaysia Retail Chain Association.

It also said the weakening ringgit since last year has placed pressure on companies selling imported retail goods or importing raw materials and semi-finished goods.

"Many of them are passing the higher costs to end consumers,” it said.

However, it noted that the cheaper ringgit boosted domestic and international tourism with a faster recovery of foreign tourist arrival.

The industry performance for the first quarter of this year is expected to be a strong 7.1 per cent due to the Chinese New Year celebrations and month-long school holidays as well as the attractive Malaysian currency and visa-free entry for visitors from China.

"Malaysia’s retail industry is estimated to grow by 3.5 per cent during the second quarter with contributions mainly from the Hari Raya festival,” it said.

It said the retail sector is expected to record a growth of 2.5 per cent by the third quarter of 2024 and hopeful of a 3.2 per cent growth for the last quarter.