Executive Summary

Gross Domestic Product. Looking ahead, we foresee the upcoming two quarters of this year would still record reasonable growth rates given the low base effect last year. Thus, we anticipate an average growth of 4.9% this year, an upward revision of our earlier estimate of 4.5%. While 2023 saw net exports as a main drag for the said year, we believe it would contribute to Malaysia’s growth momentum in the coming months.

Inflation and the Overnight Policy Rate. Considering Malaysia’s subdued inflation and a flattish unemployment rate, we posit that the OPR will stay pat at 3.00% in 2H2024, which is appropriate and sufficiently supportive of the domestic economy. We are revising our inflation FY2024 forecast lower from 3.0% to 2.1%.

Fiscal Deficit. 1H2024 fiscal deficit is higher than in 1H2023, but we should see a faster decline in 2H2024, given the government’s intention to consolidate it further to 4.3% of GDP (2023: -5.0%). The projection is derived from the estimated 8.7% nominal GDP growth, lower expenditures and slightly higher revenue. The move signifies the government’s mid-term goal of a 3.5% average fiscal deficit from 2024 to 2026.

Unemployment Rate. We foresee that the rate could end the year at 3.2%, given the robust growth in the 2Q2024 GDP number, which is driven by strong domestic and export activities, among others. Simultaneously, this could lead to an improved job market, as seen in positive trends in Manufacturing sectors thus far regarding employment and wages. The country’s labour market prospects are positive as some sectors or segments of the workforce can enjoy higher wages amid the civil service pay hike, the statutory minimum wage revision and the EPF Flexible Account withdrawal.

Subsidy Rationalisation. We commend the government’s initiatives in pursuing fiscal consolidation. If executed strategically, it will unlikely significantly impact inflation, defying our earlier take. Although the roll-out timeline of RON05 subsidy rationalisation is unknown, we expect it to proceed this year considering the presently low inflation environment and the government’s 4.3% fiscal deficit target this year.

Debt. Total debt-to-GDP is higher at 70.8% in 1H2024 (1H2023: 67.3%), mainly due to the weaker Ringgit. Malaysia’s statutory debt-to-GDP stands at approximately 60.4% in 1H2024 versus 60.6% in 1H2023 (4Q2023: 62.1%). Things should improve in 2H2024, thus, we do not see the need to raise the debt ceiling for now.

Source: AmInvest Research - 5 Sept 2024