KUALA LUMPUR (Aug 16): Economists are upbeat about Malaysia's 2024 prospects following faster-than-expected economic growth in the second quarter (2Q).
The Department of Statistics Malaysia reported on Friday that gross domestic product (GDP) grew 5.9% year-on-year for the April-June quarter, surpassing both the median estimate of 5.8% in a Bloomberg survey and the official flash estimate of 5.8%. On a seasonally adjusted basis, GDP increased 2.9% quarter-on-quarter.
UOB Global Economic and Markets Research has revised its 2024 GDP growth forecast to 5.4% from 4.6%, while maintaining a 4.7% growth projection for 2025.
"We believe the official GDP growth target of 4.0% to 5.0% for 2024 may be revised higher when the government tables Budget 2025 on Oct 18, with a possible GDP growth target of 4.5% to 5.5% for 2025," UOB said in a note.
Key growth drivers include the global tech cycle rebound, rising tourism, ongoing government aid, and national budget measures, supported by a stable labour market, it noted
However, UOB also flagged downside risks to Malaysia's growth outlook, including a larger-than-expected impact from fuel subsidy cuts, rising geopolitical risks including trade protectionism, and a potential global economic slowdown, particularly with uncertainties surrounding the US presidential election.
MIDF Research also plans to revise its full-year GDP forecast upwards from 4.7%, citing faster-than-expected domestic economic activity, positive income growth, and controlled inflation.
"At the same time, the recovery in exports is expected to continue, with electrical and electronics [E&E] exports likely to improve in the latter part of the year alongside increased demand for non-E&E products," it added in a note.
MIDF cautioned that several downside risks could impact Malaysia’s growth outlook, such as weak growth in the US and China, escalation of geopolitical conflicts affecting trade, and higher inflation from government policy changes potentially hurting consumer spending.
BNM likely to keep interest rate unchanged
Meanwhile, Capital Economics expects Bank Negara Malaysia (BNM) to maintain the overnight policy rate at 3% for the rest of 2024.
It noted that while Malaysia’s economy performed better than anticipated in the first half of the year, a slowdown is still expected.
"A key reason for the anticipated near-term weakness is the government's plan to continue cutting subsidies for food and energy products, which will likely increase inflation and impact real household incomes," the research house said.
Additionally, lower commodity prices and a waning boost from the tourism sector, with new tourist arrivals approaching pre-pandemic levels, are expected to weigh on economic activity, it noted.
With the economy likely to slow and inflation rising, Capital Economics said the central bank faces a challenging balancing act.
"We believe policymakers will opt to keep interest rates unchanged for the foreseeable future," it said.
Similarly, ANZ (Australia & New Zealand Banking Group) Research said it expects BNM to maintain its policy rate through 2024.
ANZ said Malaysia's growth outlook for the remainder of the year is positive, driven by strong public and private investments.
"The government's ongoing efforts to expand the digital economy in Malaysia will help boost private-sector spending," it added.