• Malaysia's advance estimate of 4Q24 GDP missed market consensus.
• Booming construction sector.
• Of resilient consumer demand and tourism recovery.
• Softening external front.
• Anchored by domestic demand, Malaysia's GDP to expand by 4.7% in 2025.

Malaysia's advance estimate of 4Q24 GDP missed market consensus. The Department of Statistics Malaysia (DOSM) advance GDP report indicates that growth slowed to 4.8% YoY in 4Q24, down from 5.3% in 3Q24, marking the second consecutive quarter of moderation and the slowest pace in three quarters. This advance estimate also fell short of the market prediction of 5.2%. The deceleration reflects a mixed economic landscape, with robust growth in certain sectors offset by contractions elsewhere. In 4Q24, the services sector recorded a modest uptick, growing by 5.3% compared to 5.2% in the previous quarter. All sub-sectors within services delivered positive contributions, reaffirming the sector's resilience. On the other hand, the manufacturing sector experienced a slowdown, expanding by 4.3% in 4Q24, down from 5.6% in 3Q24, as the sector grappled with weaker demand and a declining trend in the S&P Global Malaysia Manufacturing PMI, which fell to 48.6 in December 2024, its lowest level since March 2024. The construction sector continued to display strength, with growth at 19.6% in 4Q24, slightly easing from the 19.9% recorded in 3Q24. This performance was driven primarily by increased activity in residential and non-residential construction projects. However, the primary sectors dragged on overall growth. Agriculture, in particular, faced challenges likely due to softer volume demand, even as prices for CPO and rubber remained strong. CPO prices surged by 32.2% YoY in 4Q24, the steepest jump since 3Q22, while rubber prices rose by 30.8% YoY, marking the fifth consecutive quarter of double-digit expansion. Based on this advance estimate, Malaysia's economy expanded by 5.1% in 2024, aligning with the MOF's forecast range of 4.8%-5.3%.

Booming construction sector. For four consecutive quarters, the construction sector rose by double-digit pace. Again, the growth rate almost hit 20.0% YoY in 4Q24. Infrastructure works as per highlighted in PIKAS 2030 and Budget 2024 are among catalysts for the sector. In addition, realization of post-pandemic approved investments in manufacturing and services including factories, warehouses and data centres indirectly contributes towards the robust construction sector expansion.

Of resilient consumer demand and tourism recovery. Strong domestic fundamentals including stable job market, low inflation pressure and accommodative economic policies continue solidifying consumer demand. Services sector growth remains above 5.0% YoY level for three straight quarters. We should expect stronger growth than advance estimates for services sector as well as private consumption given that the new salary for civil servants effective in December 2024. Also, year-end holidays globally will further boost tourism activities in the last month of 2024.

Softening external front. Based on various macro indicators, Malaysia's external sector showed signs of softening in the final quarter of 2024, as indicated by slower growth in gross exports and the Industrial Production Index (IPI). The three-month moving average (3MMA) for gross exports rose by 1.7% YoY in 4Q24, marking the smallest increase in a year. Domestic exports, which account for 80.6% of total outbound shipments, grew by 5.6% YoY - a three-quarter low. In contrast, re-exports remained in contraction for the sixth consecutive quarter, declining by 12.2% YoY in 4Q24. By sector, agriculture exports maintained double-digit growth, while manufacturing export growth moderated to 2.2% YoY, the slowest pace since 2Q24. Mining exports continued to decline, pressured by lower oil prices and weakening regional demand. This overall export performance contributed to the 3MMA IPI growth rate falling to its lowest level in a year. Manufacturing IPI and export-oriented industries recorded slower growth at 3.7% YoY and 4.1% YoY, respectively, compared to the previous quarter. The deceleration in Malaysia's external front reflects challenges from lower commodity prices and a fragile global growth outlook, weighed down by uncertainties over the monetary policy direction in developed markets and ongoing trade tensions.

Stable job market, muted inflation pressure. Malaysia remains in a state of full employment, with the unemployment rate holding steady at a low 3.2%. Inflation has stayed subdued, coming in well below the MOF's initial forecast range of 2.1%-3.6% for 2024. However, the 3MMA for distributive trade sales increased modestly by 4.7% YoY in 4Q24, the slowest pace in more than three years. The moderation was primarily driven by weaker sales in motor vehicles and wholesale trade. Retail sales, on the other hand, outperformed the previous quarter, bolstered in part by a stronger recovery in tourism activities. Domestic demand fundamentals remain robust, supported by low unemployment, easing inflationary pressures, favorable economic policies, and the continued recovery of the tourism sector. As highlighted in Budget 2025, measures such as salary increases for civil servants, enhanced cash aid for vulnerable groups, and a higher minimum wage are expected to stimulate local spending and strengthen domestic consumption in 2025.

IMF foresee stronger global growth. The IMF recently revised its global GDP growth forecast for 2025 upward to 3.3%, slightly above the 3.2% projected for 2024. The upgrade reflects stronger-than-expected growth in major economies, including the U.S. and China, with GDP forecasts raised to 2.8% (October 2024 estimate: 2.7%) and 4.6% (October 2024 estimate: 4.5%), respectively. China's economy grew by 5.4% YoY in 4Q24, exceeding market expectations of 5.0% and marking its fastest pace since 3Q23. For the full year, China's GDP expanded by 5.0%, aligning with its official target but slightly below the 5.2% achieved in 2023. Meanwhile, Vietnam outperformed significantly, registering a robust 7.1% GDP growth in 2025, surpassing the National Assembly's target range of 6.0%-6.5% and well above the previous year's 5.1%. The impressive 4Q24 performance was fueled by both domestic and external drivers, with domestic consumption rising 7.5% YoY and fixed investments up 8.0%. Exports surged by 11.4% in 4Q24, likely benefiting from accelerated shipments ahead of potential global trade tensions. For 2025, Vietnam has set a growth target of 6.5%-7.0%. Further south, Singapore's economy grew by 4.3% YoY in 4Q24, outperforming market expectations of 3.8%. For the full year, GDP growth stood at 4.0%, also exceeding consensus forecasts, reflecting resilient performance across key sectors.

Anchored by domestic demand, Malaysia's GDP to expand by 4.7% in 2025. We project Malaysia's real GDP growth to moderate slightly to 4.7% in 2025, following an estimated 5.0% expansion in 2024, which aligns closely with DOSM advance estimate of 5.1%. The projected deceleration reflects the normalization of economic activity and heightened uncertainties, including potential shifts in U.S. trade policies, tariff adjustments, and the impact of domestic price policy changes on consumption. Malaysia's economic performance in 2025 is expected to remain supported by strong labour market conditions, sustained demand for electrical and electronics (E&E) exports, and the accelerated implementation of key investment projects. Private consumption, a key driver of growth, will likely benefit from the upcoming minimum wage hike to RM1,700 per month (from RM1,500), effective February 2025. However, downside risks loom, particularly from the uncertain global outlook. Geoeconomic fragmentation, policy shifts under a possible Trump administration, and uncertainty surrounding China's economic recovery could disrupt global supply chains and dampen external demand. Domestically, the implementation of targeted fuel subsidies later in the year may alter consumer and business behaviour, while the construction sector is projected to moderate due to high base effects from its robust growth in 2024. On the upside, faster-than-anticipated progress in large investment projects could provide a boost to growth. Balancing these risks, we maintain our 2025 GDP growth forecast at 4.7%, reflecting a measured transition towards a more stable economic trajectory after an estimated 5.0% growth in 2024.

Source: BIMB Research - 20 Jan 2025