We expect Malaysia’s advance 2Q2024 GDP estimate to come in strong at 5.3% y/y. Our latest forecast is premised on the gradual improvements in the external sector, better distributive trade sales growth, robust labour market, and sustained and low inflation in the quarter. Base effects also matter, given that Malaysia’s growth in the same quarter in the preceding year was weighed down by the semiconductor downcycle, which was no longer the case in the previous quarter. There is an upside to our subsequent 2Q2024 GDP growth forecast subject to incoming data.

There is a rising possibility of an CY2024 GDP growth upgrade should our forecast materialise. Our current CY2024 GDP growth stands at 4.5% y/y, falling in the middle-point of the official range of 4.0% - 5.0%. Should 2Q2024 come in at 5.3% y/y or higher, our in-house Malaysia’s FY2024 GDP should correspond accordingly. We expect private consumption to remain well supported amid more favourable labour market prospects. However, our projections face downside risks from higher retail energy prices amid subsidy rationalisation.

We expect Malaysia’s advance 2Q2024 GDP estimate to come in strong at 5.3% y/y

The Department of Statistics Malaysia (DOSM) will release Malaysia’s advance 2Q2024 GDP estimates on Friday, 19 July 2024. Our model suggests that Malaysia’s 2Q2024 would likely come in higher than 1Q2024 at 5.3% y/y. We believe that the favourable growth performance in the quarter was due to gradual improvements in the external sector, better distributive trade sales growth, a robust labour market, and sustained and low inflation. Base effects also matter amid low 2Q2023 growth. Our estimates also show that growth, based on production approach, to come in at 3.4% y/y for Manufacturing (1Q2024:1.9% y/y), Services at 5.7% y/y (1Q2024: 4.7% y/y), Mining & Quarrying at 6.4% y/y (1Q2024: 5.7% y/y), Agriculture at 6.0% y/y (1Q2024: 1.6% y/y) and Construction at 7.5% y/y (1Q2024: 11.9% y/y). There is an upside to our subsequent 2Q2024 GDP growth forecast subject to incoming data.

On a year-on-year basis, Malaysia’s exports have ceased declining, marking a shift from the contraction observed since March 2023. Notably, in 2Q2024, we expect exports to North America and Southeast Asia to record double-digit growth, whereas growth in exports to the European Union was comparatively subdued. The Electrical and Electronics (E&E) sector saw an end to its 8-month period of contraction, aligning with gradual improvements in global semiconductor trade. Contrarily, due to an unfavourable exchange rate, import growth outpaced exports in the aforementioned quarter, exacerbating Malaysia’s trade balance. It is our view that import growth will decelerate in the upcoming months, in tandem with our expectation of the ringgit reaching RM4.63 to a US dollar by year-end.

Furthermore, we observe ongoing robustness in domestic demand, supported by improved distributive trade growth. Notably, strong car sales in the said quarter prompted the Malaysian Automotive Association to revise its 2024 car sales forecast upward by 3.38%. Retail trade sales outpaced wholesale trade in 2Q2024, correlating with a steady inflation uptick during the period. As the market anticipates heightened inflation in 2H2024, we expect a corresponding improvement in retail sales performance.

We believe that Malaysia's inflation has stabilised, with non-food and food and beverage inflation aligning with headline inflation. We noticed that non-food inflation has begun to outstrip that of food and beverages, contributing to the possibility of higher headline inflation in the coming months due to the former accounting for 70.2% of the total CPI basket. While we have not observed diesel subsidy rationalisation, beginning 10 June 2024, impacting consumer inflation, producer inflation should be affected to a greater extent. Nonetheless, the average 5M2024 consumer inflation figures stood at 1.7%, which is a comparatively low level considering the various supply-side interventions since early this year.

Additionally, Malaysia's labour market remains resilient, with a flat unemployment rate of 3.3% since November 2023. The labour force participation rate remained stable at a historic high of 70.3% during 2Q2024. Notably, payroll in the manufacturing sector continued to trend in the positive territory, mirroring the observed growth in manufacturing employment throughout the said quarter.

There is a rising possibility of an FY2024 GDP growth upgrade should our forecast materialise. Our current FY2024 GDP growth stands at 4.5% y/y, falling in the middle-point of the official range of 4.0% - 5.0%. Should 2Q2024 come in at 5.3% y/y or higher, our in-house Malaysia’s FY2024 GDP should correspond accordingly. We expect private consumption to remain well supported amid more favourable labour market prospects. However, our projections face downside risks from higher retail energy prices amid subsidy rationalisation.

Source: AmInvest Research - 19 Jul 2024