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StanChart: Malaysia heading in right direction towards economic growth

Publish date: Mon, 15 Apr 2024, 07:32 PM

KUALA LUMPUR (April 15): Malaysia’s economic growth is expected to recover to 4.8% in 2024 versus 3.7% in 2023, as external demand continues to improve moderately in the quarters ahead, according to Standard Chartered Bank Malaysia Bhd (StanChart).

In its Global Focus - Economic Outlook Q2-2024 report on Monday, it said that exports rose 3.9% year-on-year (y-o-y) in the first two months of 2024 (2M2024), improving from the 6.9% y-o-y contraction in the fourth quarter of 2023 (4Q2023).

“That said, the key electronics cluster recovery was slow, contracting 10.9% y-o-y in 2M2024. We expect the sector to play catch up with the broader electronic recovery,” the bank said in the report.

On foreign direct investment (FDI) in Malaysia, StanChart said interest remains encouraging, as total approved FDI reached RM188 billion in 2023, up 15% y-o-y, of which manufacturing investment accounted for 70%.

This should help support overall investment, which rose 5.5% in 2023, the report said.

“On Malaysia’s trade surplus, the value narrowed to RM10.5 billion in 2M2024, compared with RM17.8 billion in [the same period in] 2023, partly due to smaller electronics and commodity surpluses.

“We expect the merchandise trade balance to improve in the coming months. The electronics trade surplus should catch up with the recovery in the global tech cycle, while slightly higher crude palm oil prices have led to an improvement in the commodity trade balance in recent months,” it said.

On the services front, the continued recovery in inbound tourism should further narrow the services trade deficit, StanChart said.

On banking policy, StanChart expects Bank Negara Malaysia (BNM) to maintain its overnight policy rate at 3% this year.

In the latest March monetary policy statement, the central bank reiterated that its current stance is supportive of the economy. 

“We believe BNM will look past any one-off effects of the subsidy reduction, and will primarily consider the second-round impact,” it said.

Meanwhile, StanChart also said that cyclical factors turn more supportive of global trade subdued demand from Europe, the US and China this year is likely to remain a headwind to trade-dependent economies.

“That said, some cyclical factors are turning more supportive of global trade. The electronics downturn is ending as inventories normalise, and structural drivers including the artificial intelligence ‘supercycle’ are lifting tech demand.

“Economies such as Taiwan, South Korea, Singapore, Malaysia, Thailand and Vietnam should benefit,” it added.

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