KUALA LUMPUR (May 20): Malaysia is expected to see a "potential upswing" in external demand, particularly from China, while also benefitting from the imposition of US tariffs on Chinese goods, including electric vehicles (EVs) and their components, said TA Securities.

"While the escalation of trade tensions between the US and China might initially seem detrimental to Malaysia due to its close economic ties with China, there are potential avenues through which Malaysia could benefit from this situation," TA Securities said in a note on Monday.

The firm said the rebound in demand from China suggests that Malaysia could benefit by increasing its trade volume with the country, which contributes about 12.3% of Malaysia's total exports.

Meanwhile, the firm said the costlier tariffs on Chinese products represent an opportunity for Malaysia to "step in and fill the gap left by Chinese manufacturers".

According to TA Securities, Malaysian companies specialising in the production of EV components, such as lithium batteries and semiconductors, could find increased demand from US manufacturers looking for alternative suppliers outside of China.

"By positioning itself as an alternative manufacturing hub for EV components, Malaysia can mitigate the impact of escalating US-China trade tensions and foster economic resilience," it added.

This could lead to job creation and technology transfer, positioning Malaysia as a strategic manufacturing center for EV components, it noted.

Notably, last week, US President Joe Biden unveiled steep tariff increases on an array of Chinese imports including electric vehicle (EV) batteries, computer chips, and medical products.

Meanwhile, TA Securities, along with other economists, foresee Malaysia’s economic growth to accelerate on supportive private consumption, benefitting from continued employment and wage growth alongside higher investment activities.

Gross domestic production (GDP) growth forecast for Malaysia, ranging between 3.5% and 4.7% for 2024, was upheld by economists after the first quarter reading accelerated faster than expected at 4.2% year-on-year (y-o-y).

"Growth is expected to be spearheaded by supportive private consumption, benefitting from continued employment and wage growth, as well as higher investment activity, reflected by the healthy investment intentions," said Hong Leong Investment Bank.

The recovery in trade activity is also expected to lift GDP growth, aided by a low base effect, recovery in the global tech sector and improving commodity prices, it noted.

The research house expects GDP to normalise upwards to 4.8% y-o-y in 2024, in line with BNM’s official target of 4.0%-5.0% y-o-y.

Apex Securities, on the other hand, sees investment activities intensifying, fuelled by the progression of multi-year projects across private and public sectors.

“This momentum is expected to be amplified by the execution of strategic initiatives under the National Industrial Master Plan (NIMP) 2030 and the materialization of approved investments,” Apex Securities said. Further improvements in in-bound tourism are also expected to support the economy, it noted.

Subsidy rationalisation, geopolitical risks pose minimal threat

Economists also foresee the government’s subsidy rationalisation efforts, which are expected to be enforced in the latter half of 2024, posing minimal challenge to economic growth.

"These efforts, aimed at reducing fiscal deficits and reallocating resources more efficiently, may lead to adjustments in individual incomes," TA Securities said. The policy could result in altered spending patterns among consumers, as disposable income decrease for some households, it noted.

TA Securities added that certain sectors may see a more significant impact, particularly those reliant on government support due to higher costs, leading to slower expansion and reduced hiring, which could further dampen economic momentum.

However, economists believe the consequences to be merely a blip and would be cushioned by the cash withdrawal policy through the Employees Provident Fund’s (EPF) flexible account, known as Account 3, which is already operational.

"While it is much less than the special withdrawal of up to RM10,000 allowed two years ago due to the Covid-19 pandemic, it is still expected to boost consumption and help increase disposable income," TA Securities said.