KUALA LUMPUR (July 16): The Asean+3 Macroeconomic Research Office (Amro) has cut its forecast for Malaysia’s economic expansion to 4.7% for 2024, from the previous estimate of 5%, to account for slower-than-expected export growth.

However, the regional macroeconomic surveillance organisation raised its 2025 gross domestic product (GDP) growth forecast for Malaysia to 4.9%, on an expected strong rebound in exports, Amro chief economist Khor Hoe Ee said at a press briefing.

“The main reason is the export sector has been a bit slow to pick up, but it is still a very strong growth,” Khor told the press at the virtual briefing on Tuesday. “The export recovery is a bit slow this year, but will be stronger next year.”

Further, resilient domestic demand and foreign direct investments made in the past few years will be implemented this year and in 2025, which will help support Malaysia’s economy, he said.

“Malaysia’s semiconductor and electronics sector will benefit from the upturn, but more slowly,” he added.

Meanwhile, he said the ringgit has been performing well since February since “the economy did well” and because of "measures such as encouraging GLCs (government linked companies) to repatriate earnings”.

“We think the ringgit will be stronger than last year,” he said without setting any target.

Additionally, he said Amro also strongly supports the rationalisation of subsidies in Malaysia.

“This would free up its fiscal space, which could be used for other growth enhancing expenditures. Expectation is that they will go on lifting the subsidy on RON95; it is quite painful but will be well received by the investment community and needed to help Malaysia to focus more on areas of expenditure,” added Khor.

Amro’s report assesses 10 members of the Association of Southeast Asian Nations (Asean), China, Hong Kong, Japan, and South Korea.

The report said key risks to Malaysia’s outlook in the near term stem mostly from external factors.

It said weaker-than-expected growth in the world’s major economies — including uncertainty over whether the US can pull off a “soft landing” and the underwhelming post-pandemic recovery in China — could derail the nascent upturn in the global technology cycle, with consequences for employment and wages.

"The US presidential election this year also could have a wide-ranging impact on global trade and technology.

"Meanwhile, supply-related disruptions, such as those arising from geopolitical conflicts, could keep inflation elevated and dampen domestic demand,” it added.

Additionally, an extended higher-for-longer interest rate environment in the US can lead to continued currency depreciation pressures and tight financial conditions, it said.

Recovery is underway for Asean+3 exports

In a report released Tuesday, Amro said that barring the sharp decline in March — mostly from base effects, especially in China — demand for the region’s exports have held up since the start of the year.

Year-to-date, 12 of the region’s economies are already seeing higher export growths relative to the preceding period in 2023.

“Despite concerns about the sharp increase in global shipping prices due to disruptions in the Red Sea, the April-June purchasing managers’ index indicators continue to suggest confidence among Asean+3 exporters,” it said.

Nevertheless, inflation across Asean+3 remains largely contained, even with strong domestic demand keeping core inflation elevated in some economies.

Uncertainty around US interest rates has weighed on Asean+3 financial markets.

In June, the Federal Reserve signalled the possibility of just one rate cut this year — from three cuts initially communicated in March.

Higher-for-longer interest rate expectations saw Asean+3 bond yields rise in the second half of June, alongside more subdued activity in several equity markets.

Most regional currencies continue to weaken against the US dollar, albeit at a more modest pace than at the start of the year — except for Japan.