• The Department of Statistics (DOSM), in its third quarterly advance GDP release, showed 1Q24 GDP growth expanded to 3.9% (4Q23: 3.0%)
  
  − This is slightly higher than the house projection of 3.3% but matches Bloomberg’s consensus of 3.9%. On a quarterly basis, growth declined by 3.4% (4Q23: 3.1%), versus house projection of -4.0%. The detailed 1Q24 GDP results will be released on May 17.

• Resilient services sector, a manufacturing recovery, along with stronger construction and mining performance more than offset the moderation in agriculture
  
  − The services sector expanded to 4.4% (4Q23: 4.2%), led by growth in the wholesale & retail trade, transportation & storage, and business services sub-sectors, as well as a rebound in the finance & insurance sub-sector.
  
  − The manufacturing sector rebounded to 1.9% (4Q23: -0.3%) following two consecutive quarters of decline. Growth for this sector was contributed by non-metallic mineral products, basic metal & fabricated metal products, and transport equipment, and other manufacturing & repair. However, growth was partially capped by the weakness in vegetable and animal oils & fats and food processing.
  
  − The mining and quarrying sector expanded to 4.9% (4Q23: 3.8%), mainly driven by higher production in the natural gas sub-sector.
  
  − The construction sector rose sharply to 9.8% (4Q23: 3.6%) supported by civil engineering, specialised construction activities and residential buildings. However, the momentum was partially capped by a decline in non- residential buildings.
  
  − Nevertheless, the agriculture sector moderated to 1.3% (4Q23: 1.9%) as forestry & logging and fishing sub-sectors contracted during the quarter. Nonetheless, the weakness in this sector was partially supported by growth in the oil palm and livestock sub-sectors.

• Despite the stronger-than-expected 1Q24 GDP performance, we maintain our growth forecast for 2024 at 4.5% - 5.0% as risk to growth persist. Momentum is likely to steadily pick up in the 2H24
  
  − While the 1Q24 GDP estimate by DOSM exceeded the house forecast, we maintain the overall 2024 GDP growth projection at 4.5% - 5.0% as downside risk remains in the 1H24. Export performance remains subdued due to China’s fragile post-pandemic recovery, while escalating geopolitical tensions, notably in the Middle East, could potentially escalate into regional conflicts, adversely impacting the global supply chain and sentiment, and subsequently weighing on growth outlook. This is also reflected in the latest Manufacturing PMI for March at 48.4 (Feb: 49.5) which has remained in contraction since August 2022. Additionally, exports declined by 0.8%, matching February’s decline. Domestically, the long-awaited targeted subsidy mechanism could also pose a threat to consumer spending given the expected rise in general prices amid higher fuel prices.
  
  − Likewise, we anticipate that robust domestic demand will support growth, with a projected lower unemployment rate of 3.2% in 2024 (2023: 3.4%). This forecast is underpinned by continued expansion in the services sector and anticipated recovery in manufacturing sector, as well as further realisation of investment approved last year. This will also be partly backed the continued rise in tourist arrivals and spending, along with ongoing government fiscal spending and the imminent prospect of E&E upcycle especially in the 2H24. Against this backdrop, we retain our 2024 GDP growth forecast at 4.5% - 5.0%, aligning with the MoF and BNM projections of 4.0% - 5.0%.

Source: Kenanga Research - 22 Apr 2024