KUALA LUMPUR, Oct 10 ― Malaysia’s loan growth will likely taper for the rest of this year as investors wait for Putrajaya to announce its Budget 2019, Fitch Solution Macro Research (FSMR) forecasted.
However, the Fitch Group unit maintained its 2018 loan growth forecast at 4.5 per cent year-on-year (yoy) although the growth recorded for August hit 4.8 per cent .
“We expect a slowdown in loan growth in the remaining months in 2018 due to a weakening consumption and investment outlook,” the market research firm said in a statement today.
It said the slowdown is in line with its projection for private consumption after the end of the three-month tax holiday between June and September with the transition of the 6 per cent goods and services tax (GST) to the new sales and services tax scheme.
FMSR said household loans represented the biggest share of outstanding loans in the sector at 57.4 per cent of total loans in August. It grew by 6.1 per cent that same month, the fastest pace in 2018.
It said the pickup in loans growth between June and the end of August, when the GST was zero-rated, had increased private consumption, which also boosted credit card and auto loans.
FMSR said credit card loan growth accelerated to 4.9 per cent yoy in August, significantly outperforming the year-to-date average of 3.4 per cent yoy, the sector’s fastest growth since March 2015, when consumers probably rushed to make their purchases before the onset of the GST in April 2015.
It also anticipates that auto loans, which ended 26 months of contraction to register a 0.3 per cent yoy expansion in August, to similarly decelerate from September through the end of 2018.
FMSR sees the slowdown in loans being compounded by a slowdown in investment ahead of the tabling of Budget 2019 on November 2 as businesses adopt a wait and see approach.
The government has already cancelled the Chinese-funded East Coast Rail Link, Trans Sabah Gas Pipeline and the Multi-Product Pipeline, which were estimated to cost a combined total of RM65 billion.
It sees these developments negatively affecting the construction sector, weighing on lending.
FMSR predicted that private consumption will grow only 5.5 per cent in 2019, the slowest pace since 2009. As result, it said household credit demand will likely also drop.
It added that there is also little upside for investment despite Prime Minister Tun Mahathir Mohamad’s assurance of the Pakatan Harapan (PH) government’s pro-business stance.
While FMSR said the upcoming budget will likely include measures to spur private investment, it also expects cuts to capital spending as the new government seeks to trim the RM1 trillion sovereign debt pile, which would curtail investment opportunities.
FMSR noted the PH government’s promised labour policies as laid out in its election manifesto, such as restricting hiring of migrant workers and raising minimum wage, and said such measures are likely to dampen investors’ appetite.
