KUALA LUMPUR: Malaysia’s economic growth is anticipated to continue its strong performance into the fourth quarter of 2024, driven by internal and external factors following a notable GDP growth of 5.1 percent in the first half of the year.
Chin Yee Sian, an economist at RHB Investment Bank Bhd, noted that various drivers will sustain Malaysia’s growth trajectory in the coming months. She pointed out that trade and manufacturing sectors are expected to see enhanced activity, supported by a steady increase in domestic demand characterized by rising consumer and investment spending.
“Our positive outlook is reinforced by recent developments, including solid trade figures and industrial production metrics, as well as favorable outcomes from ongoing investment activities linked to multi-year infrastructure projects and business-friendly policies,” she commented in her research report.
RHB Research has upheld its GDP forecast for Malaysia at 5.0 percent for 2024, which aligns closely with the government’s projection of 4.0 to 5.0 percent.
On the domestic front, Chin expressed confidence in the growth of private consumption, bolstered by favorable labor market conditions. She noted that the ongoing increase in consumer expenditure and the resurgence of tourism activities will significantly contribute to the growth of service sectors, including retail trade, accommodation, and communications.
“Moreover, investment spending is expected to remain robust, driven by government policies that favor businesses and the execution of initiatives outlined in national master plans,” she added.
Chin also emphasized that Malaysia’s trade performance is expected to stay resilient, buoyed by optimistic economic growth in major markets and a global technological upcycle.
Despite the positive outlook, Chin acknowledged certain challenges, such as potential reductions in consumer spending linked to lower disposable incomes due to subsidy realignment, alterations in social assistance programs, and increases in the services tax.
She cautioned that trade performance could be slower than anticipated if protectionist policies emerge from the United States, particularly in light of any ongoing real estate recovery issues in China.
On the topic of inflation, Chin indicated that the headline inflation rate might stabilize within the range of 2.0 to 2.3 percent for the remainder of the year, assuming that any adjustments to RON95 fuel prices are deferred until December 2024 at the earliest.
“Inflationary pressures remain manageable following the diesel price adjustments in Peninsular Malaysia and the modifications to the services tax, which resulted in a 1.8 percent increase in headline inflation over the first eight months,” she noted.
Looking ahead, the trajectory of inflation will largely depend on the timing and scale of RON95 subsidy reforms, demand-pull factors stemming from Malaysia’s robust growth figures, and fluctuations in global commodity and food prices.
Chin also mentioned that the overnight policy rate is likely to remain steady at 3.0 percent, given the manageable inflation levels and stable economic prospects.
Additionally, she maintained that the fiscal deficit projection stands at 4.3 percent of GDP for this year, with a potential target of 3.5 percent for the following year.
“The recent introduction of a diesel price float in Peninsular Malaysia will complement existing fiscal consolidation strategies, including the revision of the services tax and utilities tariffs, expected to improve the fiscal outlook compared to 2023,” she highlighted.
Chin anticipates that the upcoming Budget 2025 announcement will seek a balance between fiscal sustainability and economic growth initiatives. She looks forward to further clarifications regarding the RON95 fuel subsidy restructuring, the High-Value Goods Tax, the Progressive Wage System, and the new remuneration scheme for civil servants.
Furthermore, the government might explore broadening the range of taxable goods and services under the current sales and services tax (SST) framework to enhance revenue from consumption taxes.