• Malaysia’s advance GDP estimate expanded 5.8% yoy in 2Q24 (1Q24: 4.2%) owing to significant improvement across almost all sectors.

• GDP was likely driven by both domestic and external demand following improvement in short-term economic indicators and trade numbers.

• We maintain our 2024F GDP growth forecast at 5.2%; we believe growth momentum will remain robust for the rest of the year.

Strong economic activity; a gain to 2Q24 GDP

Malaysia’s advance GDP estimate expanded by 5.8% yoy in 2Q24 (1Q24: 4.2%), below our forecast of 6.3% but above Bloomberg consensus. For 1H24, estimates place GDP growth at 5% yoy (1H23: +4.1% yoy). In 2Q24, all economic activities recorded positive growth, notably the construction sector, which sustained higher double-digit growth of 17.2% yoy (1Q24: +11.9% yoy). The finalised 2Q24 GDP data is scheduled for release on 16 Aug 2024 (Friday).

Supply side sector expanded on quarterly basis

On a qoq basis, all supply side components, except for the mining sector, registered positive growth in 2Q24 vs. 1Q24. Agriculture sector growth recorded a stark improvement at 6.6% qoq (1Q24: -9.3% qoq), after registering negative growth for 2 consecutive quarters. We attribute this to higher palm oil output on improvement in labour supply. As for manufacturing, sector growth rebounded to 1.8% qoq (1Q24: -3.7% qoq) owing to improvements in primary-related clusters, as well as the E&E sector (2Q24: +10.6% qoq). The construction sector grew by 3.7% qoq (1Q24: +8.1% qoq), reflecting steady progress in key infrastructure projects, such as the ECRL, RTS and Pan Borneo Sabah.

Domestic demand continues to aid growth

Domestic economy is expanding as evidenced by the stronger growth of wholesale retail trade at 6.9% yoy in Apr-May 24 (1Q24: +5.4% yoy), as well as growth in imports of consumption goods, which we attribute to higher spending capacity. In fact, Malaysian Automotive Association has updated its 2024F motor vehicle sales forecast to 765k units (740k previously). We believe that domestic spending should remain robust for the year following the government’s efforts to increase disposable income. Some of the measures include:

• The introduction of the EPF Flexible Account in May 24; as at 24 Jun 2024, a total of 3.16m members have withdrawn a total of RM7.81bn. EPF expects the applications to rise until 31 Aug 2024.

• On top of the 2024 Budi Madani, Sumbangan Tunai Rahmah and Sumbangan Asas Rahmah cash handouts, monetary assistance will be provided to those who qualify when RON 95 subsidies are rationalised. Stronger tourism-related activity should also support consumption, in our view, following a higher target of 2024F tourist arrivals (27.3m vs. 2023’s 20.1m). As for investment, we think that the strong interest in Malaysia as an alternative for the global supply chain realignment, as well as the ongoing advancement of multi-year infrastructure projects in accordance with the national masterplans (New Industrial Masterplan 2030, National Energy Transition Roadmap, 12th Malaysia Plan), should support investment activity.

GDP forecast maintained at 5.2% in 2024F

We also think that recovery in external demand has supported economic growth following the increase in 2Q24 exports growth at 5.8% yoy vs. 1Q24’s 2% (see report). This indicate global demand is improving, although the risk of trade disruption could be exacerbated due to potential trade disputes, such as between the US and China. Hence, any disruption to trade flows would likely have a detrimental impact on Malaysia’s exports growth. We maintain our 2024F GDP forecast at 5.2%.

Source: CGS-CIMB Research - 22 Jul 2024