Upgraded consumer spending growth to 7.3 pct

“On the demand side, we upgraded consumer spending growth (to 7.3 per cent from 6.5 per cent), but downgraded growth for Government consumption (to one per cent from +5.8 per cent), investment (to 3.1 per cent from 6.6 per cent) as well as exports to (4.3 per cent from 4.9 per cent) and imports (to 2.5 per cent from 5.7 per cent).

“Consequently, domestic demand, which makes up slightly over 90 per cent of GDP, is revised downward (to 5.2 per cent from 6.4 per cent), offsetting the upward revision in net external demand growth (to 19.5 per cent from negative 2.2 per cent),” it said, noting that it would further revise its growth forecast as more details on PH Government’s economic policies come into place.

In particular, Maybank IB Research pointed out that there is a need to cover the government’s funding gap following Prime Minister Tun Dr Mahathir’s zero per cent GST rate effective June 1, 2018.

In addition, it highlighted that the prime minister said that current levels of fuel prices would stay despite the rise in crude oil price, indicating the de-facto implementation of fuel price stabilisation via subsidy.

The research team stressed that there could be revenue loss from the zero-rating GST.

“Under Budget 2018, this year’s expected GST revenue is RM43.8 billion. The zero- rated GST implies GST revenue shortfall of RM25.6 billion on a simple pro-rated basis, equivalent to a 1.8 per cent of GDP deterioration in budget deficit which is targeted to be at 2.8 per cent of GDP this year under Budget 2018.

“A key immediate mitigating factor is the upside to oil-related revenue forecast of RM37.7 billion in Budget 2018 amid rising crude oil price,” it said.

It noted that Budget 2018’ s crude oil price assumption is USD52/ bbl ( Brent) against year-to-date average of US$69 per bbl.

“We estimated that every US$10/bbl rise in annual average crude oil price will boost oilrelated revenue by RM7 billion to RM8 billion,” it projected.

However, it pointed out that the net increase in oil-related income is tempered somewhat by ‘ fuel subsidies/ fuel price stabilisation’ mechanism that has actually been in place since late-March 2018.

“This is validated by the observation that retail fuel prices of RON97, RON95 and diesel have not changed since March 22, 2018 despite the 16 per cent rise in Brent crude since then up to May 17, 2018, indicating fuel prices are being subsidised,” it added.

Maybank IB Research also noted that further mitigation from the zero-rated GST should come with the eventual reintroduction of the Sales and Services Taxes (SST) which previously earned the Government RM17.2 billion on a full year basis.

“SST has to be tabled in the Parliament for approval. The Parliament must reconvene within 120 days after its dissolution back on April 7, 2018,” it added.

In another note, AmBank Investment Bank Bhd’s research arm (AmBank) said that with the announcement of the GST removal, added with the potential reintroduction of fuel and electricity subsidies as well as the review of toll roads, underlying inflation could pick up gradually.

“Apart from private consumption and services, we noticed that most of the other economic segments showed some loss of growth momentum.

“Still, our current 5.5 per cent GDP growth for the full year remains, as we expect the private consumption and services sectors will continue to support growth together with other areas of business activities,” it added.

As for the monetary policy this year, Kenanga Research expected it to remain accommodative.

However, it said: “Although the central bank has left interest rates unchanged since it raised the overnight policy rate (OPR) in January, the outlook for monetary policy may have turned considerably uncertain following the change in government.

“The biggest risk to the monetary policy outlook is that a post-election sharp decline in investment would exacerbate an economic slowdown. This may prompt BNM to loosen its monetary policy and cut interest rates.”

For now, it said, it maintained its view that the OPR would remain on hold until the end of the year.