KUALA LUMPUR (Nov 15): Economists are largely expecting Malaysia's gross domestic product (GDP) growth to sustain in the final quarter of 2024, but raised concerns about US tariff risks weighing on global trade, which may negatively impact Malaysia's economy in 2025.
This follows the release of the country's third quarter (3Q) GDP growth earlier on Friday, which came in at 5.3%, matching the consensus of a Bloomberg poll.
For the full year 2024, economists are largely expecting Malaysia GDP's growth to come in between 4.2%-5.5% — as opposed to the government's forecast of 4.8%-5.3% — while growth for 2025 is expected to be 4.3%-5%.
While the 3Q GDP print was lower than UOB Global Economics & Markets Research's estimate of a 5.7% growth, the research house has kept its 4Q growth forecast at 5.8%, premised on year-ago low base effects, year-end seasonal demand and growth catalysts such as the upcoming December increase in civil servants' wages, flexible Employees Provident Fund (EPF) withdrawals and the year-end cash aid worth RM3.4 billion from the government.
However, it tweaked its full-year GDP growth projection down to 5.3% from 5.4%, while it kept its growth forecast at 4.7% for 2025, pending further details on US trade policies and tariffs. "Domestic catalysts include expansionary fiscal policy, favourable labour markets, implementation of national masterplans and high impact projects, as well as stable interest rates," it wrote in a note.
"That said, downside risks to the growth outlook for 2025 have also risen given the looming threat of US tariff risks and impact on global trade," it flagged.
Likewise ANZ (Australia & New Zealand Banking Group) Research and HSBC Global Research, which noted a strong investment boost to the 3Q GDP growth, are expecting growth momentum to be maintained in the final quarter of 2024.
"The investment cycle is unlikely to be exhausted soon, whereas fiscal flexibility is sufficient. The cumulative budget deficit of RM51 billion in the first three quarters is only 60% of the full-year 2024 target. Assuming revenue growth does not falter, there is no need for the government to rein in spending," said ANZ, whose GDP estimate for 3Q was spot on.
"Finally, this growth does not call for any shift in monetary policy, which Bank Negara Malaysia has characterised as growth supportive. The main risk to our sanguine view is the growing uncertainty around tariffs and global trade by implication. We have not factored in the impact of unfavourable trade policies in our forecasts and will assess it when there is greater clarity," it said.
HSBC noted that consumption and investment boosted the 3Q growth print, which showed growth momentum had remained strong as it rose 1.8% quarter-on-quarter on a seasonally adjusted basis (q-o-q sa), despite a moderation from 2Q's 2.8% growth.
"What caught our eyes is the impressive growth in GFCF (gross fixed capital formation, which measures the value of new additions to a country's capital assets such as infrastructure, buildings and machinery), which momentum itself grew close to 6% q-o-q sa, pushing year-on-year growth to over 15% in 3Q only. The strength came from both the public and private side. We surmise this was likely related to investment in data centres and public infrastructure.
"All in all, we expect Malaysia’s growth to accelerate to 5.0% in 2024, but we see slight upside risks to our growth forecast. For 2025, we are constructive about Malaysia’s growth outlook, despite some lingering uncertainty on global trade. We expect growth to remain strong at 4.6%," HSBC wrote in a separate note.
Meanwhile, Capital Economics, which has one of the highest 2024 GDP growth forecasts for Malaysia — at 5.5% — thinks a jump in inflation, driven by the removal of food and fuel subsidies, will weigh on private consumption growth in the coming year.
"An expenditure side breakdown of the figures showed that the strong growth outturn was broad based. Exports, fixed investment and public spending all registered rapid q-o-q growth, but we doubt this will sustain in the near term. We expect weaker global demand and a fading boost from the tourism sector to curtail export growth in the coming quarters. Lower commodity prices will also weigh on activity while a looming decline in public investment (based on Budget 2025) suggests to us that the strength in non-residential construction (which has persisted throughout this year) is unlikely to last," it said.
"Elsewhere, private consumption contracted by 0.5% in 3Q, and we think consumer spending is set to struggle in the coming year. A key drag will come from the jump in inflation, driven by the planned subsidy cuts, we anticipate although the minimum wage hike proposed in the latest budget could partially offset that," Capital Economics added.
It is expecting Malaysia's GDP growth to ease to 5% next year. "A key downside risk to the economic outlook is tighter monetary policy than we had previously expected," it said, as it flagged the possibility of Bank Negara Malaysia raising the interest rate next year.
"Given inflation is already set to rise in Malaysia next year, contrary to what we think will happen in the rest of Asia, and with risks to import price pressures now skewed firmly to the upside, the central bank could opt to tighten policy. Nevertheless, the rise in inflation will come from a very low starting point (the headline rate stood at just 1.8% y-o-y in September) and we doubt the jump will be significant enough to prompt the central bank to tighten monetary policy," it added.
The Trump factor
Newly elected US President Donald Trump's early appointments are suggesting that the US will be taking strong trade actions in terms of tariffs that will have global effects, economists noted.
"The uncertainty lies in the extent of actual tariffs, timing of tariffs, and potential tit-for-tat (retaliatory) actions from other key trading partners. The magnitude of impact is difficult to ascertain at this juncture albeit we cannot underestimate the odds that tariffs will be higher with differences in sectoral outcomes and differentiated between economies.
"Malaysia benefited from the last round of Trump protectionism given accelerated supply chain shifts and 'plus one' strategies adopted. While supply chain shifts will likely continue, the shift may be slower and companies are taking a more cautious approach given that Trump may adopt a different approach to target the diversion of flows to avoid the tariffs," UOB noted.
HSBC Global also flagged that Asean's sizeable trade surplus with the US may attract unwanted attention as the region has gained substantial market share in certain sectors since the start of the US-China trade tensions.
"For example, Vietnam’s textiles and footwear sector, as well as Malaysia’s semiconductor and Thailand’s auto parts sectors may be some areas that are vulnerable to tariff risks," it added.