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M’sia poised to benefit from electronics sector recovery in 2H24

Publish date: Wed, 19 Jun 2024, 02:46 PM

IN a recent report by Oxford Economics commissioned by the Institute of Chartered Accountants in England and Wales (ICAEW), Malaysia stands to gain from the anticipated resurgence in the electronics sector during the latter half of 2024 (2H24).

Positioned strategically in the electronics value chain, Malaysia is expected to capitalise on the global recovery in semiconductor sales.

Southeast Asia including Malaysia, is forecasted to experience economic growth of 4.0% in both 2024 and 2025, as per the report.

“However, this is below the pre-pandemic average of 5% in the five years prior, largely due to expected challenges in domestic consumption as interest rates remain higher for longer,” said Oxford Economics.

While this growth projection reflects a slowdown from pre-pandemic levels, it underscores the region’s resilience amid ongoing challenges in domestic consumption and sustained higher interest rates.

Vietnam has notably benefited from a robust 16.8% year-on-year (yoy) export growth in line with the global semiconductor sales rebound, while Singapore also saw a positive upturn in non-oil domestic exports recently.

“On a seasonally adjusted basis, Singapore also saw a rebound in non-oil domestic exports in April with an estimated 9.4% month-on-month (MoM) growth, marking a positive turn after two consecutive months of decline,” it added.

“Nevertheless, the boost from the electronics sector in Southeast Asia remains softer compared to other Asian semiconductor heavyweights like Taiwan and South Korea.”

Despite Malaysia reporting a first quarter GDP growth of 4.2% in 2024, challenges persist, particularly concerning the Malaysian ringgit’s depreciation against the US dollar due to interest rate differentials between Bank Negara Malaysia (BNM) and the US Federal Reserve.

Inflation has remained below 2% over the past six months with no strong signs of increase, yet currency depreciation presents a challenge for BNM in implementing policy measures to bolster the economy.

“This challenge persists until the US Federal Reserve initiates rate cuts, anticipated to occur in the third quarter (Q3), alleviating pressure on the ringgit and potentially enabling policy rate adjustments,” it further added.

“While Malaysia’s first quarter (1Q24) gross domestic product (GDP) growth showcased resilience, primarily supported by robust electronics exports, the economic outlook remains cautious due to challenges in both domestic consumption and external demand.”

Looking ahead, the Malaysian economic outlook remains cautiously optimistic, bolstered by strong electronics exports, potential growth in the tech sector and optimistic prospects in tourism and investment ventures.

However, uncertainties in global economic conditions and domestic policy responses continue to loom, influencing the cautious growth forecast for the Malaysian economy in the coming year.

“The strong US dollar, driven by the Federal Reserve’s high interest rates, prevents local central banks from cutting rates without risking further currency depreciation,” Oxford Economics pointed out. - June 19, 2024

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