KUALA LUMPUR (Aug 29): The Federation of Malaysian Manufacturers (FMM) Research has revised upwards its 2024 economic growth forecast for Malaysia to 5.1%, from a previous estimate of 4.1%, given the stronger-than-expected growth momentum in the second quarter.

“The new forecast suggests that growth will likely exceed the government’s target range of 4% to 5%,” its president Tan Sri Soh Thian Lai said in a statement on Thursday.

“Malaysia’s economy is on a robust recovery path, driven by strong exports, private consumption, and investments. Despite global uncertainties, we expect the economy to continue its positive growth trend throughout the rest of 2024,” he added.

FMM has also revised upwards its forecasts for private investment and consumption spending, reflecting the economy’s strong recovery trajectory.  (See table)

Soh pointed out that the Malaysian economy has shown surprising resilience in the first half of 2024 (1H2024), with growth exceeding expectations.

“The economy expanded by 5.9% in 2Q, up from 4.2% in 1Q, driven by a strong export-led recovery, robust domestic demand, and a surge in tourist arrivals. This marks the highest growth rate since the first quarter of 2017, bringing the average growth for 1H2024 to 5.1%,” he said.

Malaysia’s economic growth has been driven by a robust export sector, with real exports up by 8.4% in the second quarter. This growth has been supported by strong demand for commodities, electronics, and petroleum products. The manufacturing sector has also benefitted from capacity expansions and relocations, partly due to US’ curbs on Chinese technology, said Soh.

“For example, Infineon has opened a new semiconductor plant in Kulim, and Chery will start exporting from its new plant in Shah Alam by the end of the year. Private consumption spending exceeded expectations, growing by 6% in the second quarter. This was partly due to delayed subsidy cuts and new government policy measures, such as the creation of a third EPF account for immediate needs and emergencies.

“Additionally, a pay rise for civil servants is expected to boost spending further,” Soh said.

Private investments have also shown robust growth, driven by multi-year infrastructure projects and the realisation of approved projects. The tourism sector has also performed strongly, with tourist arrivals up by 28.9% in the 1H2024, generating significant income for the country.

Inflation is expected to rise in 2H2024, with Bank Negara Malaysia projecting a manageable increase within the official forecast of 2% to 3.5%. The ringgit has rebounded strongly against the US dollar, reaching an 18-month high, and is expected to maintain an appreciating bias in the coming months.

Globally, Soh said the economic landscape in 2024 has been shaped by several factors, including geopolitical conflicts, tight monetary policies, and a slowing Chinese economy. Despite these challenges, the global economy, particularly the US, has shown remarkable resilience.

“The US economy’s performance is crucial, as it will determine the future path of global growth. The US Federal Reserve’s (Fed) near-term policy challenge is to engineer a soft landing, balancing the risks of inflation and unemployment. Recent indicators, such as the unemployment rate and retail sales, suggest a gradual cooling of the labour market, giving the Fed confidence to consider rate cuts later this year.”

Soh noted that China’s economy continues to face challenges particularly in the property sector, weak business confidence, and deflationary pressures. The economy grew by 4.7% in 2Q, down from 5.1% in 1Q. “With industrial output slowing and unemployment rising, China’s economic outlook remains uncertain, unless the government ramps up stimulus efforts,” he added.