PETALING JAYA, July 19 — Experts anticipate the economic growth in the third-quarter (Q3) of 2018 to be positive due to the rise in consumer spending power, after the Goods and Services Tax (GST) was zero-rated last month.

Sunway University Business School economics professor Yeah Kim Leng told Malay Mail that the Q3 of gross domestic product (GDP) growth is expected to inch up with the anticipated surge in consumer spending on the back of zero-rated GST.

"It will reverse the moderating growth momentum and lend greater certainty that the full year growth will hover around the 5.5 per cent mark,” he said, adding that businesses will also experience an uptick in demand as consumer spending during tax holiday increased.

As businesses increase, Yeah said, this will support the economy through the shift from government to consumer spending, and accompanying rise in businesses that will offset some cutback in government-related activities.

"With lower tax revenue, the government will have less to spend but on the positive side, we will see an increase in spending efficiency and a reduction in wastages and leakages in the public sector,” he added.

RAM Rating Services Bhd head of research Kristina Fong believes that zero-rated GST should provide some upward support to GDP growth in Q3 through the private consumption channel.

She said the tax holiday period should spur household spending activities, especially for larger-ticket discretionary spending items which are more cost-saving during this period.

"Discretionary items are generally more sensitive to price changes. Demand and spending on necessities such as food and transport services shouldn’t see too much of an incremental jump,” she told Malay Mail when contacted.

However, she said the boost in private consumption is expected to be moderated by lower investment activities caused by some restraint in large investment projects.

"Retail sector activities have been improving since 2017 after a couple years of sluggish consumption activities due to structural shifts in labour, and ironically, the implementation of GST in 2015,” Fong added.

The latest RAM Business Confidence Index (BCI) in the second half of this year shows business performance in retail sector will continue its positive trajectory with retail players expecting a performance boost to consumer demand from the tax-free period.

Therefore, some uncertainties such as rate and scope of intended Sales and Services Tax (SST) still remain, which may affect retailers’ costs from potential pass-through effects from the manufacturers, Fong said.

In addition, she anticipates that the zero-rated GST alone will reduce headline inflation by 0.3 percentage points.

But, in the remaining months before SST is implemented, headline inflation should be quite soft, especially with fuel subsidies also in place.

"Collectively, these two effects (zero-rated GST and petrol price cap at RM2.20 per litre for the rest of the year), along with persistently weak food price inflation brings 2018’s headline inflation down from our initial projection of 2.3 to 1.5 per cent,” the head of research said.

Ernst & Young Tax Consultants Sdn Bhd indirect tax leader Yeoh Cheng Guan said the increase in consumer demand will likely stimulate the production and supply of goods and services which will have a positive impact on the GDP growth for Q3.

However, he said, as SST is expected to be effective in September, its implementation may neutralise consumer spending, thereby counteracting GDP growth from the zero-rating of GST to a certain degree.

"Although it could be reasonably expected that there would be a decrease in prices after the change of GST rate, we anticipate that the impact of this on household expenses to ordinary rakyat would not be that significant,” Yeoh said.

He explained that it is because even prior to the change of the GST rate, the supplies of basic commodities were already not subject to six per cent of GST (except electricity).

"Whilst such a change is expected to significantly affect the business sector, from the rakyat’s perspective, any decrease in the price of commodities, no matter how small, would still be viewed as a significant, positive change,” he added.