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Malaysia's economy will pick up pace but global uncertainties remain key risks — economists

Publish date: Fri, 19 Apr 2024, 10:48 PM

KUALA LUMPUR (April 19): Malaysia’s economic growth will likely pick up pace in the quarters ahead, economists say, though some are cautioning that global uncertainties raise the risk of undershooting the official target for 2024.

This follows the Department of Statistics Malaysia's advanced gross domestic product (GDP) estimate of 3.9% for the first quarter of 2024 (1Q2024).

The official 2024 full-year GDP forecast by Bank Negara Malaysia is for growth to come between 4% and 5%.

“We expect the recovery in electronics and electrical (E&E) exports, higher tourist arrivals, domestic demand resilience underpinned by stronger investment growth, as well as the onset of low-base effect to lift Malaysia’s growth further in the coming quarters,” said CIMB Investment Bank in a note on Friday, adding that it maintains its GDP growth forecast of 4.9% for 2024.

Notably, the research house pointed out that the proposed flexible EPF (Employee Provident Fund) Account 3 could be a short-term catalyst for domestic consumption, which could offset inflation upside from fuel subsidy rationalisation.

This is a similar sentiment shared by Bank Muamalat Malaysia's chief economist Mohd Afzanizam Abdul Rashid who believes that the Malaysian economy can grow between 4% and 5% this year.

"Although subsidy rationalisation might affect consumer sentiments, conciliatory measures such as cash transfer and the (proposed) EPF Account 3 withdrawal scheme for members along with sturdy labour market should be able to sustain domestic spending," he told The Edge in an enquiry.

Second Finance Minister Datuk Seri Amir Hamzah Azizan had earlier said the EPF Account 3, or known as the flexible account, will be announced by the end of April. The mechanism was previously mooted to allow EPF members more flexibility in accessing their savings.

However, Malaysia University of Science and Technology Professor Geoffrey Williams have doubts that the official growth target can be met, although he agrees that the new EPF Account 3 reallocation scheme will be able to support domestic consumption.

He says that the official target would be a challenge to meet, given the weakness in the global markets while that the effect of the weaker Ringgit on exports appears to be tapering off.

"It is more likely that the economy will grow at 3% to 4% like last year unless the new EPF Account 3 reallocation releases RM20 billion to RM30 billion into the economy to push domestic consumption," he said.

With the uncertainties taking place in the global geopolitical climate, economists have mixed views regarding the impact of geopolitical risks on export-oriented sectors such as E&E, energy and metal goods in Malaysia.

RHB Investment Bank, which maintained its GDP forecast at 4.6% for 2024, projected the export growth to remain robust on account of a brighter global growth landscape and re-acceleration in the technology cycle.

"The electronics and electricals (E&E) exports in Malaysia will be buoyed by higher demand, specifically with a positive spillover effect resulting from improved trade performance and manufacturing activities in China," it said.

However, it also warned that any unexpected escalation in geopolitical tensions could threaten its global growth assumptions. While Malaysia’s trade and tourism incomes have relatively low exposure to the Middle East economies, it said slower global GDP growth and trade - particularly in the United States and Europe - could impact Malaysia’s external demand and investment income.

Meanwhile, Capital Economics suggested that the manufacturing sector is not out of the woods yet, despite rebounding to 1.9% in 1Q2024 from a contraction of 0.3% in 4Q2023, as global growth is anticipated to remain slow due to the weaker GDP growth in the United States.

It also expects the large services sector in Malaysia to slow due to the cooling labour market and the maturing recovery in the tourism sector with new arrivals moving closer to pre-pandemic levels.

“Looking ahead, we think growth is set for a renewed slowdown even if growth in mining and construction remains strong,” it said, adding that it expects GDP to grow by 3.5% in 2024, lower than the consensus forecast of 4.2%.

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