KUALA LUMPUR (July 19): Economists are mostly maintaining their 2024 economic growth forecast for Malaysia after the official advance estimate showed a faster than expected growth for the second quarter (2Q).

The Department of Statistics Malaysia reported on Friday that the gross domestic product (GDP) is estimated to have grown 5.8% in April to June compared to the same period last year, driven by consumer spending and exports.

This is the biggest rise in six quarters, and compares to the median 4.7% expansion predicted in a Bloomberg survey. In the first quarter, the economy grew 4.2% year-on-year.  

UOB Global Economics & Markets Research, noting that the advance 2Q estimate surpassed its own projection of 4.6% for the quarter, said it will revisit its forecast for the full year when the final 2Q number is released on Aug 16.
 
"With average GDP growth of 5% in 1H2024 and a continuation of year-ago lower base of comparison in 2H2024, there is upside risk to our full-year GDP growth forecast of 4.6% for 2024 (BNM est: 4-5%, 2023: 3.6%)," it said in a note.

“The ongoing global tech upcycle, higher tourist arrivals and spending, continued investment flows and implementation of catalytic initiatives under the national master plans remain key growth catalysts amid lingering external uncertainties,” it added.

RHB Research said it is keeping its 2024 GDP forecast at 4.6% year-on-year "with the balance of the risks tilted to the upside, given the stronger-than-expected 2Q2024 GDP growth print.

It expects the 2Q GDP growth to be sustained at 5% for the third quarter, driven by further acceleration in trade and manufacturing activities in the second half, and resilience in domestic demand from increased consumer and investment spending.  

“We remain optimistic on the private consumption growth in Malaysia amid healthy labour market demand conditions. The unemployment rate is expected to remain stable at a pre-pandemic level of 3.3% while the job creation remains healthy. The continued expansion of consumer spending and improved tourism activities would spur the growth of services sector segments such as the retail trade, accommodation and restaurants, and communication segments,” RHB Research said.

ANZ (Australia & New Zealand Banking Group) Research said a gradual improvement in exports and robust growth in investment will be the main drivers of Malaysia’s growth in the coming quarters.

"In the exports sector, growth in electrical and electronic products [E&E] exports has turned positive in 2Q2024, while growth in non-E&E exports has remained strong. The export orders component of the manufacturing PMI has moved into expansionary territory since April. Combined with robust intermediate goods imports, the outlook for exports is positive," ANZ Research said in a note.

It added that the outlook for private consumption is more tentative, as petrol subsidy rationalisation may temporarily weigh on private consumption in the near
term.

Capital Economics, meanwhile, was less optimistic, saying Malaysia's economic growth may see a sharp slowdown in the coming quarter, as higher inflation may dampen consumer spending and lower commodities prices will weigh on growth.

“GDP growth accelerated sharply in the second quarter but, with a jump in inflation set to curtail consumer spending and the boost from tourism likely to fade, we still expect a sharp slowdown in the coming quarters. Looking ahead, we think growth is set for a renewed slowdown. We expect global commodity prices to decline over the coming quarters and with commodities accounting for about a third of goods exports, lower prices will weigh on economic activity in Malaysia,” said Capital Economics in a research note.

“Elsewhere, the recovery in the tourism sector is maturing with new arrivals almost back to pre-pandemic levels now. So growth rates in the services sector should also ease,” it added.

The research firm said the government’s attempt to rationalise the fuel subsidy will also contribute to the jump in inflation in the coming quarters, which will suppress real wages and drag on consumer spending.

UOB Global Economics & Markets Research said that despite the higher-than-expected 2Q GDP growth and upside risks to inflation, the research firm continues to expect Bank Negara Malaysia to keep the overnight policy rate unchanged at 3%.

"Even with the commencement of global monetary policy easing towards year-end and into 2025, the strength of Malaysia’s domestic demand does not warrant any follow-through to cut rates while external demand is recovering albeit bumpy," it said.

Similarly, ANZ Research said that considering the near-term GDP growth outlook and stable inflation, it saw no need for any action on the policy rate.
 

https://www.theedgemarkets.com/node/719709