Economic Growth - Malaysia's GDP grew by 4.5% year-on-year in Q2, exceeding market expectations and slightly higher than the previous quarter's 4.4% [1] - The growth was primarily driven by strong domestic consumption, with significant contributions from the services and agriculture sectors [1] Sector Performance - The services sector was the main driver of economic growth in Q2, growing by 5.3% compared to 5.0% in Q1, supported by wholesale and retail trade, transportation, and business services [1] - Agriculture showed notable improvement with a 2.0% growth in Q2, up from 0.6% in Q1, largely due to increased palm oil production [1] - The construction industry continued its strong growth, achieving an 11% increase in Q2, despite a slowdown from 14.2% in Q1, driven by non-residential and specialized construction activities [2] - Manufacturing growth slowed to 3.8% in Q2 from 4.1% in Q1, but key sectors like electrical, electronic, and food processing remained robust [2] - The mining and quarrying sector faced challenges, contracting by 7.4% in Q2, worsened from a 2.7% decline in Q1, primarily due to falling oil and gas production [2] Domestic Consumption - Strong domestic consumption was a key factor in Q2 economic growth, supported by a stable labor market and low unemployment rates, which bolstered household spending [2] - Government cash assistance programs, such as SARA and STR, provided additional support to household spending, alleviating economic pressure on families [3] Trade and Policy Challenges - Despite exceeding growth expectations, Malaysia's economy faces challenges from global trade uncertainties, with exports unexpectedly declining by 3.5% in June [3] - Potential tariffs from the U.S. on Malaysian exports, particularly a proposed 25% tariff effective August 1, could significantly impact the export market [3] - The slowdown in major export markets may also affect export demand, alongside domestic policy adjustments that could pressure economic growth [3] Future Outlook - The central bank anticipates a slowdown in economic growth in the second half of the year but expects the annual growth rate to exceed 4.5% [4] - Continued domestic demand growth and government policy support are expected to provide some buffer for the economy [4] - The central bank is closely monitoring trade and tariff developments and is likely to implement further interest rate cuts later in the year to support economic growth [4]

Investment Rating - The report maintains a "Buy" rating for the wholesale and retail trade industry, indicating an expected investment return exceeding 15% over the next 6-12 months compared to the market benchmark index [5]. Core Insights - The retail and catering sales during the 2025 Labor Day holiday increased by 6.3% year-on-year, showing a recovery from the previous quarter's growth of 4.1% [1][2]. - Key categories such as national subsidies and service consumption continue to perform strongly, with significant sales growth in home appliances (15.5%), automobiles (13.7%), and communication devices (10.5%) [1]. - Service consumption also saw high growth, with restaurant revenues up 8.7% year-on-year and travel orders increasing by 30% compared to 2023 [2]. - The report highlights a narrowing decline in offshore duty-free sales, with a total of 510 million yuan spent during the holiday, a decrease of 7.3% year-on-year, and an increase in per capita spending by 1.1% [3]. Summary by Sections Retail Sales Performance - The 2025 Labor Day retail sales showed a year-on-year increase of 6.3%, with a slight decline from 6.8% in 2024 but an improvement from 4.1% in the previous quarter [1]. Key Categories - National subsidy-related categories saw significant sales growth, with home appliances, automobiles, and communication devices showing increases of 15.5%, 13.7%, and 10.5% respectively [1]. - E-commerce platforms also reported over 20% growth in smart home product sales [1]. Service Consumption - Restaurant revenues increased by 8.7% year-on-year during the holiday period, outperforming the overall market [2]. - Travel-related orders surged, with a 30% increase in orders compared to 2023, and hotel bookings reached a historical peak [2]. Offshore Duty-Free Sales - The report notes a narrowing decline in offshore duty-free sales, with total spending of 510 million yuan during the holiday, down 7.3% year-on-year, and a decrease in the number of shoppers by 8.0% [3]. Overall Consumption Trends - The report indicates steady growth in overall consumption, with specific attention to national subsidy categories, gold and jewelry retail, and emotional consumption products [4].