Fitch unit: More spending, car buying with new fuel subsidies, no GST

A sign announcing the zero-rated GST change is seen at a supermarket. — Picture by Yusof Mat Isa
A sign announcing the zero-rated GST change is seen at a supermarket. — Picture by Yusof Mat Isa

KOTA KINABALU, July 13 — The zero-rating of the Goods and Services Tax (GST) and the reintroduction of fuel subsidies last month is expected to increase consumer spending and cause a credit growth of 4.5 per cent this year, according to analysts BMI Research.

The Fitch Group unit said that the two policy change by the Pakatan Harapan (PH) government will boost consumer sentiment and household loans, particularly in the credit card and autos segments.

The PH government led by Prime Minister Tun Dr Mahathir Mohamad zero-rated the previously 6 per cent GST from June 1 and set aside RM3 billion to subsidise fuel on June.

“We see the boost to household loans from the abolition of the GST on June 1 and reintroduction of fuel subsidies on June 7 outweighing the likely downside to construction loans from the announced cancellation of the Kuala Lumpur-Singapore High Speed Rail (HSR),” it said.

The group said household loans, which consists of 57 per cent of total loans, will continue to increase. In April, growth was at 5.7 per cent, which was slightly higher than the 5.2 per cent average growth rate for the past 12 months.

“Our Consumers Team revised up their real consumer spending forecast for 2018 to 8.2 per cent from 6.5 per cent previously, on the back of the policy boost to an already strong outlook for consumer spending.

“This reflects their expectation for consumer spending to maintain the strong average growth rate of 8.3 per cent year on year as seen in 2017. On the back of this, we expect credit card loans growth to further improve on a strong start to 2018,” it said.

Credit card loans grew 3.8 per cent April and the average growth rate in the first four months of 2018 was 3.7 per cent, picking up from an average of 2.2 per cent in 2017.

Car sales is expected to rise from the GST cut, and the research group have revised their forecast for 2018 car sales growth from 2.2 per cent to 2.6 per cent, returning to growth after a flat 2017.

“We do not see the headwind from the cancellation of the Kuala Lumpur-Singapore HSR derailing the outlook,” it added.

“The group forecast credit growth to come in at 4.5 per cent year-on-year in 2018, a slight pickup from 2017’s 4.3 per cent, as we expect Malaysia’s banking sector to receive a boost from

policies enacted by the PH government since coming to power in May.

However, the report also said that the cancellation of the HSR in May will negatively affect construction growth over the coming months.

“Construction loans (which account for about 4.8 per cent of total loans) have grown strongly, picking up to 15.6 per cent in April from 12.4 per cent in January.

“The government also halted the East Coast Rail Link (ECRL) on July 4 and seeks to renegotiate the terms of the agreement, which was signed in 2016, with China.

“The agreement saw the bulk of financing for the project, then estimated to cost RM55 billion provided by Chinese financial institutions. A renegotiation could see local banks provide the majority of financing instead, leading to more loan opportunities for the Malaysian banking sector, but we do not see this coming online in 2018,” it said.

The report also said that if the current government enacted its proposal to increase minimum wage by 50 per cent to RM1,500 a month, it would further boost consumer sentiment and likely result in household loan growth growing by an even faster pace.

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