Malaysia’s Growth to Maintain Momentum into Q4

KUALA LUMPUR: Malaysia’s economy is set to sustain its strong growth momentum into the fourth quarter of 2024, supported by both external and internal factors following an impressive GDP growth of 5.1 percent during the first half of the year.

Chin Yee Sian, an economist at RHB Investment Bank Bhd, expressed that the combination of various factors would underpin Malaysia’s economic growth for the remainder of the year. She noted that trade and manufacturing sectors are expected to gain further traction, alongside a sustained increase in domestic demand reflected in rising consumer and investment spending.

“Our optimistic perspective is bolstered by recent trends such as solid trade figures and industrial output, along with positive outcomes from ongoing investment initiatives tied to long-term infrastructure projects and supportive policies for businesses,” she stated in her research note.

RHB Research has retained its GDP growth forecast for Malaysia at 5.0 percent for 2024, closely aligning with the government’s projected range of 4.0 to 5.0 percent.

On the domestic front, Chin expressed confidence in the prospects for private consumption, driven by favorable labor market conditions. She highlighted that the continued growth in consumer spending and a resurgence in tourism would significantly enhance growth in service sectors such as retail trade, accommodation, and communications.

“Investment spending is also expected to remain robust, bolstered by business-friendly policies and the execution of initiatives outlined in national development plans,” she elaborated.

Furthermore, Chin underscored that Malaysia’s trade performance is expected to remain resilient, driven by positive economic growth prospects in major markets and the global technology cycle.

Despite the favorable outlook, Chin cautioned about potential challenges, such as the possibility of reduced consumer spending due to lower disposable income resulting from subsidy adjustments, changes in social assistance allocations, and increases in the services tax.

She also warned that trade performance might fall short of expectations if protectionist policies from the U.S. are implemented, particularly amidst a lack of recovery in China’s property sector.

On the inflation front, Chin noted that the headline inflation rate might stabilize between 2.0 and 2.3 percent for the rest of the year, assuming adjustments to RON95 fuel prices are postponed until December 2024.

“Inflationary pressures appear manageable following diesel price adjustments in Peninsular Malaysia and revisions to the services tax, resulting in a 1.8 percent increase in headline inflation over the first eight months,” she indicated.

Looking ahead, the inflation outlook will depend largely on the timing and magnitude of RON95 subsidy reforms, demand factors from Malaysia’s robust growth, and fluctuations in global commodity and food prices.

Chin projected that the overnight policy rate is likely to remain steady at 3.0 percent, given the manageable levels of inflation and stable economic outlook.

Additionally, she confirmed that the fiscal deficit projection stands at 4.3 percent of GDP for the current year, with a target of 3.5 percent for the following year.

“The recent introduction of a diesel price float in Peninsular Malaysia will enhance existing fiscal consolidation efforts, including adjustments to the services tax and utilities tariffs, which are expected to improve the fiscal outlook relative to 2023,” she remarked.

Chin anticipates that the forthcoming Budget 2025 announcement will strive for a balance between fiscal sustainability and economic growth initiatives. She is looking forward to further clarifications on RON95 fuel subsidy restructuring, the High-Value Goods Tax, the Progressive Wage System, and new remuneration schemes for civil servants.

Moreover, the government may explore broadening the range of taxable goods and services under the existing sales and services tax (SST) framework to enhance revenue from consumption taxes.