Private consumption is forecast to grow in the near to medium term, despite a temporary change in household spending patterns due to the introduction of Goods and Services Tax (GST) in April 2015.

Bank Negara Malaysia noted in its 2015 Annual Report that private consumption would continue to grow at a moderate rate compared to the average growth of 7.1 per cent for the past five years.

It added that the change in household spending patterns is still experiencing an adjustment process due to the anticipation of higher prices after the GST introduction. “The post-GST period has seen a downward adjustment in consumer spending.

This period of adjustment could be more prolonged than earlier anticipated, following additional exogenous shocks to the economy in the form of a more subdued global growth environment, a fall in commodity prices and a depreciation of the ringgit exchange rate,” the central bank said.

These shocks had cumulatively resulted in increased uncertainty and affected business and household sentiments.

Bank Negara added that household spending had moderated in the second quarter of 2015 to 6.4 per cent and reached a trough of 4.1 per cent in the third quarter before recovering to 4.9 per cent in the fourth quarter.

However, the impact of GST is expected to decline as continued income growth and stable job market conditions provide fundamental support to household spending.

Supporting measures by the Government would provide some impetus to consumption activity.

“It should be noted that when the Government first announced the planned implementation of GST back in October 2013, it also proposed a package of measures designed to help households and businesses to cope with the transition,” it said.

For households, the measures include the reduction of individual income tax rates by one to three percentage points and the disbursement of higher cash transfers to low and middle income households.

Additionally, the exclusion of essential goods and services from the GST helped alleviate some of the burden of adjustments faced by households, particularly the lower income groups.

Subsequently in October last year, the Government proposed for an increase in the national minimum wage and civil servants’ salaries effective July 2016.

The Government also implemented additional measures early this year to support household consumption following a new round of shocks to the economy.

“These measures included providing employees with the option to temporarily lower their Employees Provident Fund contribution rate by three percentage points to increase their disposable income,” Bank Negara noted.