• As for 1H24, Malaysia’s economy increased by 5.1% Yo

• The expansion mainly attributed by both domestic demand and external front

• Agriculture output growth at more than 6 years high

• Current account surplus to GDP ratio at 2.0% in 1H24

• We keep our GDP forecast at 4.7% for 2024

Malaysia’s 2Q24 economic growth faster than advance estimate. The GDP expansion was the fastest since 4Q22 and slightly lower than our in-house estimate of 6.0% YoY. As for 1H24, Malaysia’s economy increased by 5.1% YoY. The expansion mainly attributed by both domestic demand and external front. Domestic demand rose by 5.6% YoY, the biggest gain in 6-quarter while real exports growth jumped further to 8.4% YoY. By sector, services sector strengthened by 5.9% YoY while manufacturing sector expanded at faster pace of 4.7% YoY, the best since 3Q22. Most notably, construction sector surged by strong double-digit pace of 17.3% YoY, the biggest expansion in 3 years.

Domestic demand stays solid. Thanks to stable job market, low inflationary pressure and supportive economic policies, private consumption increased by 6.0% YoY in 2Q24. Monetary policy remains status quo at 3.00%, fiscal support via Sumbangan Tunai Rahmah” (STR) and EPF Flexible Account 3 withdrawal which effective on 11th May 2024 are among supportive factors for private consumption in 2Q24. As for private investment, the pick-up is in line with robust growth of capital goods imports which among others thanks to data centre and civil engineering projects. Also, public investment rose steadily by 9.1% YoY which in tandem with close to RM100bn development expenditure allocated in the Budget 2024.

Stronger recovery of external trade. Outbound shipments of goods continue rising, with expansion rate of 5.5% YoY in 2Q24. This is the second consecutive quarters exports of goods recorded growth since early this year. The strengthening of goods exports mainly supported by palm oil, crude petroleum, natural gas, and turnaround of E&E growth. Apart from goods, services exports continue expanding at robust pace of 24.6% YoY. The services exports growth has been in double-digit rate for 4Q21. This is in tandem with strong recovery of tourism activities. Using MAHB’s passenger movements as tourism proxy, international passenger hit 90.9% of 2019-level as of 1H 2024 (2023: 72.4%). We expect the services exports to stay on robust pace in 2H24 among others due to 30-day visa free for key countries including China and India.

Agriculture output growth at more than 6 years high. The primary sector jumped firmly by 7.2% YoY and 6.5% QoQ. The annual growth is the highest since 1Q18. Thanks to stable and high CPO price, production of oil palm soared by 19.0% YoY. Excluding rubber and forestry & logging, other agriculture sub-sectors improved in 2Q24. Another primary sector, mining rose steadily by 2.7% amid slower natural gas output growth. Looking at Brent crude oil price, we foresee the mining sector to stay on expansionary path in 2H24.

Residential and civil engineering are key supporters for construction sector. The strong expansion of construction sector largely attributed by residential and civil engineering. Also, non-residential, and specialised construction activities increased steadily by 2.8% YoY and 27.0% YoY. Projects such as data centres, flood mitigation, railways, roads, residential and non-residential will continue keep Malaysia’s construction sector busy in 2H24.

Manufacturing and services sectors on solid grounds. With the prospect of monetary easing in developed markets, we foresee Malaysia’s manufacturing sector to stay on expansionary momentum in 2H24. On top of that, NIMP 2030 initiatives will strengthen Malaysia’s factory output growth especially in IC design, wafer fabrication, EV and specialised chemicals. As for services sector, only water, sewerage & water management recorded contraction in 2Q24. Insurance, accommodation, and real estate are the top three growth rates under the services sector in 2Q24. Looking ahead, we foresee consumer-based sector to stay solid thanks to stable job market, low inflationary pressure, supportive economic policies, EPF Flexible Account 3 withdrawal and tourism recovery. Furthermore, we opine consumer sentiment to improve in 2H24 particularly with the announcement of new salary scheme for civil servants which to be effective by year-end 2024.

Current account surplus to GDP ratio at 2.0% in 1H24. Despite of improving exports, trade surplus of goods recorded lower at RM24.6bn in 2Q24, the lowest in the last 4 years. Services account deficit reduced to -RM4.9bn, thanks to recovering tourism activity. Hence, current account surplus registered at RM3.0bn with ratio to GDP at 0.6% (1Q24: 3.6%). As of 1H24, the current account ratio stood at 2.0% which higher than last year’s 1.5%.

Export-recovery improved ASEAN 2Q24 GDP. Philippines, Vietnam, and Malaysia reported faster GDP growth following external trade recovery and steady domestic demand. Singapore registered 2.9% YoY, among others supported by turnaround of electronics sector in 2Q24. Overall, ASEAN economies are predicted to stay in steady expansionary momentum in 2H24 amid upcycle of tech sector, better global demand and encouraging commodity prices. As for China, the 2Q24 GDP growth missed market expectations of 5.1% YoY as domestic demand still sluggish partly due to persistent property woes. Across the globe, USA economy expanded on annualised 2.8% which higher than market consensus of 2.0% YoY. Better goods consumption, higher non-residential investment and government spending contributed to the growth. However, services sector slowed to 2.2% YoY against 3.3% YoY in the previous quarter. Looking ahead, we foresee moderating GDP growth for USA economy amid slight weakening of the job market.

We keep our GDP forecast at 4.7% for 2024. The 2Q24 GDP growth was indirectly influenced by low-base effects. The non-seasonally adjusted QoQ growth was 0.8%, a turnaround from -3.1% in 1Q24. However, assuming average QoQ growth for 3Q and 4Q is 3.3% based on prepandemic 2015-2019 trends, we should expect the GDP to expand at the range of 4-5% YoY in 2H24. We maintain the full-year GDP growth target at 4.7% for this year. Moving into 2H24, domestic demand is predicted to remain firm amid stable job market, low inflationary pressure, supportive economic policies, EPF Flexible Account 3 withdrawal and new salary scheme for civil servants. On external front, further recovery of tourism activity will keep services exports high while easing monetary policy will support global demand and upcycle of tech sector in 2H24. Nevertheless, weaker-than-expected global demand, volatile commodity prices, geopolitical tensions, and potential spike of domestic inflation due to subsidy-rationalisation initiative stay as downside risks to Malaysia’s growth trajectory in 2H24.

Source: BIMB Securities Research - 19 Aug 2024