• Advance GDP Estimate Showed Economic Activity Improved 3.9% YoY in 1Q24
   
• Improvement in the 1Q24 GDP Estimate Was Credited to Expansions Across All Major Sectors
   
• Malaysia's economy will pick up pace but global uncertainties remain key risks

Malaysia’s release of its advance 1Q24 GDP estimate showed that economic activity improved with real GDP grew by 3.9% YoY, as compared to 3.0% in the previous quarter. The economic performance in this quarter was spearheaded by the Services sector, with all main sectors experiencing positive growth.

The improvement in the 1Q24 GDP estimate was credited to expansions across all major sectors. This was led by services, mining & quarrying and construction sectors.

The services sector increased by 4.4% (4Q23: 4.2%) in 1Q24, supported by wholesale & retail trade, transport & storage and business services sub-sectors. Furthermore, the finance & insurance sub-sector rebounded in this quarter.

The manufacturing sector rebounded to 1.9% in this quarter after recording a contraction of 0.3% in the fourth quarter of 2023. The growth in this sector was supported by the manufacturing of non-metallic mineral products, basic metal & fabricated metal products; transport equipment, other manufacturing & repair; and petroleum, chemical, rubber & plastic products. Nonetheless, vegetable and animal oils & fats and food processing contracted in this quarter.

The mining & quarrying sector expanded by 4.9 % (4Q23: 3.8%) in 1Q24 and the expansion of this sector was driven across all activities, with the natural gas subsector being the main contributor.

The agriculture sector rose to 1.3% (4Q23: 1.9%) in this quarter, contributed from the production of oil palm and livestock. Meanwhile, forestry & logging and fishing sub-sectors displayed negative growth in this quarter

Meanwhile, the construction sector showed substantial growth at 9.8% as compared to 3.6% in the previous quarter, mainly driven by the civil engineering specialised construction activities and residential buildings. Nevertheless, non-residential buildings remained decrease in this quarter.

Malaysia's economy will pick up pace but global uncertainties remain key risks

Malaysia's economy quickened by the most in a year, signalling that a firmer recovery is under way. The advance 1Q24 GDP estimate of 3.9% is slightly lower than our forecast of 4.0%. For 2024, we expect a higher growth of 4.7%. The government and central bank expect full-year economic growth of 4% to 5% in 2024.

The services sector drove the economy, while the manufacturing sector rebounded 1.9% in the quarter following a contraction in the previous three months. Exports increased by 2.2% in 1Q24, driven by stronger trade activity with countries with which Malaysia has free-trade agreements. The performance indicates a gradual pickup in Malaysia's tradereliant economy, which slowed in 2023 amid weak external demand. In March, trade surplus rose to RM12.8bn, suggesting that the drag from net exports on overall growth is fading. The 1Q24 growth suggests Malaysia's economy is regaining momentum after moderating in 2023 on tepid global demand. The trade-reliant nation is poised to benefit should China continue to build on its surprise strong start.

Malaysia’s economic growth will likely pick up pace in the quarters ahead, aided by sustained public sector infrastructure investments, the recovery in E&E exports, higher tourist arrivals, domestic demand resilience underpinned by stronger investment growth, as well as the onset of low-base effect to lift Malaysia’s growth further in the coming quarters. Still, Malaysia will have to contend with external headwinds, as well as the potential inflationary impact of the winding back of fuel subsidies. We are also cautious that global uncertainties could raise the risk of undershooting the target for 2024. The improvements in trade data at the start of 2024 bodes well for the country's economic prospects. The rebound in global technology cycle, coupled with continued resilience in US and ASEAN economies are expected to provide some supports to the export-oriented segments, in tandem with higher external demand. However, a steeper-than-expected slowdown in trade would be the primary growth risk.

The external backdrop in 2024 is likely to remain challenging. Any unexpected escalation in geopolitical tensions could threaten global growth assumptions. While Malaysia’s trade and tourism incomes have relatively low exposure to the Middle East economies, slower global GDP growth and trade - particularly in the United States and Europe - could impact Malaysia’s external demand and investment income.

Source: BIMB Securities Research - 22 Apr 2024