KUALA LUMPUR (Aug 19): Following stronger-than-expected economic performance in the second quarter of 2024 (2Q2024), economists have revised upward their forecasts for Malaysia's gross domestic product (GDP) growth in 2024, driven by robust domestic spending and investment activity.
BMI, a unit of the Fitch group, raised its GDP growth forecast for 2024 to 4.7% from 4.4%, while MIDF Research and OCBC Global Markers Research both revised up their forecasts to 5.0% (MIDF: 4.7% previously; OCBC: 4.2%).
"This corresponds to the 5.9% year-on-year (y-o-y) growth [in 2Q2024] — the fastest pace in six quarters, and faster than our 5.4% forecast or consensus expectations of 5.8%.
"Our updated forecast falls in the upper bound of the government’s forecast range of 4.0% to 5.0%," said BMI in note on Monday.
In a separate note on Monday, MIDF said: "Economic growth will be supported by the positive outlook for domestic spending, driven by both business and consumers, amid more encouraging domestic economic conditions."
Consumer spending is expected to receive a boost from government cash assistance and the flexibility of Employee Provident Fund (EPF) Account 3 withdrawals, which will help mitigate the potential inflationary effects of subsidy rationalisation and other policy changes.
In addition, the ongoing recovery in the tourism sector, as evidenced by an increase in foreign tourist arrivals, is anticipated to further support domestic consumption, MIDF said. This will benefit industries such as accommodation, transport services, food and beverage and retail trade, it added.
In terms of sectoral growth, MIDF projects that the manufacturing sector will grow by 4.4%, construction by 9.8%, agriculture by 2.9%, and mining by 3.5% in 2024, driven by increased demand, infrastructure projects, and improved production conditions.
In a separate note, Public Investment Bank expects sustained growth in the coming quarters, fuelled by higher fixed capital investments, the advancement of large-scale projects, rising demand for data centres, and strong tourism activity.
"Investment momentum is expected to be underpinned by the ongoing execution of multi-year projects across both the private and public sectors," Public Investment Bank said, noting that this will be further enhanced by the implementation of catalytic initiatives under national master plans and an increased realisation of approved investments.
On the export front, MIDF said continued growth in the second half of 2024, particularly in electrical and electronics exports, along with steady demand for commodities such as palm oil, liquefied natural gas, petroleum products, and other manufactured goods.
Echoing the sentiment, Public Investment Bank noted that the export sector is poised for further gains, driven by the global tech upcycle and increased tourist arrivals and spending.
Still, both research houses cautioned that the growth outlook could be tempered by weaker-than-expected external demand, potential geopolitical conflicts, and lower-than-anticipated commodity production.
Despite these risks, Public Investment Bank noted potential upside from stronger spillovers from the global tech upcycle, a more robust recovery in tourism, and accelerated implementation of investment projects, which could collectively enhance Malaysia's economic prospects.
GDP to inch up from civil servant salary hikes
In addition, BIMB Securities Research foresees a 0.6% boost in Malaysia’s GDP to come from the RM10 billion fiscal injection, as a result of the new public service compensation scheme for the country's 1.6 million civil servants.
Last Friday, the government announced that starting in December 2024, mid-level civil servants will receive a 15% salary increase, while top-level civil servants will see a 7% raise.
The policy, which aims to address the rising cost of living over the years, will be implemented over two phases on Dec 1, 2024 (Phase 1) and Jan 1, 2026 (Phase 2).
“Based on our in-house economic model, the expected RM10 billion fiscal injection will generate 0.6% growth in the overall economy, especially for compensation of employees to rise by 1.1%,” BIMB Securities said.
Commenting on this, CIMB Treasury and Market Research said to ensure operating expenditure remains fully funded by government revenues through 2026, further subsidy reforms, including an expansion of floated diesel prices to Sabah and Sarawak and RON95 subsidy cuts, are likely to be phased in to make room for higher overheads.
After being floated on Jun 10, diesel retail prices have been adjusted lower from RM3.35/litre to RM3.25/litre. Meanwhile, CIMB estimated RON95 subsidy savings of RM1 billion per 10 sen decline in the US dollar-ringgit exchange rate, and RM4.5 million for every US$1/bbl decline in Brent oil prices.