KUALA LUMPUR: Malaysia is expected to maintain its economic growth forecast of 4.8% this year, mainly driven by consumer spending, according to Standard Chartered Bank Malaysia Bhd (StanChart).

"We see consumer spending moderating as labour-market conditions soften but expect it to remain the primary driver," said StanChart economist Jonathan Koh and chief economist Edward Lee in a report on Thursday (Aug 17).

According to StanChart, investments in Malaysia should continue to benefit from ongoing infrastructure projects, strong foreign direct investment (FDI) interest, and lower global interest rates.

"The external sector should benefit from an upturn in the global electronics cycle and global monetary policy easing.

"Tourism recovery may continue but the boost to growth is likely to fade as recovery approaches pre-Covid levels," said StanChart in its report titled "Malaysia - Firing on All Cylinders".

StanChart maintains its view that Bank Negara will keep the overnight policy rate at 3% in 2024, as both headline and core inflation are well within Bank Negara’s forecast.

"A key factor to monitor is any second-round effects from potential RON-95 fuel subsidy rationalisation – this has yet to be announced by the government.

"On balance, we think the risk in terms of BNM’s next move is tilted more towards a hike than a cut," said StanChart.

Meanwhile, StanChart noted that private consumption expanded by 6% in Q2, up from 4.7% in Q1.

"This is due to resilient labour-market conditions, despite some softening. Employee Provident Fund (KWSP) savings withdrawals likely boosted consumer spending in Q2 as well," it said.

StanChart also said investments contributed 2.1% to Q2 GDP growth this year, which is the highest in three years, led by the private sector.

"This is driven by ongoing progress in multi-year projects, as well as business-capacity expansion, especially in the manufacturing and services sector, according to Bank Negara.

"Strong FDI inflows to Malaysia may have also contributed to strong investment growth. H1 (first half) FDI inflows were up almost 90% y/y.

"We expect FDI inflows to continue as global interest rates fall, with central banks beginning to cut rates as inflation moderates," said StanChart.

StanChart also said goods and services exports continue to rise strongly with an 8.4% growth in Q2 this year compared to 5.2% in Q1.

"The profile of exports is changing in line with our expectations. Goods exports are picking up. Merchandise exports rose 5.8% y/y in Q2, supported by commodity exports (including palm oil and crude petroleum) and the recovery of glove and electronic exports.

"In contrast, services exports growth is slowing as tourism has already recovered strongly. We estimate that tourist arrivals had already recovered to 87% of 2019 levels as of May 2024," it said.

StanChart also said the services deficit has improved to RM4.9bil from RM7.3bil, attributed to the travel services surplus.

"On an absolute basis, the travel surplus is back to 2019 levels but as a percentage of GDP, we are 0.4% away from 2019 levels," it added.

According to Bank Negara, the country registered a 5.9% growth in Q2 this year, attributed to stronger household spending, business investments, and exports.

https://www.thestar.com.my/news/nation/2024/08/17/malaysia-to-maintain-48-economic-growth-forecast-in-2024-says-bank