KUALA LUMPUR: The economic growth momentum in Malaysia is set to persist robustly into the fourth quarter of 2024, bolstered by both internal and external factors following an impressive GDP growth of 5.1 percent in the first half of the year.
Chin Yee Sian, an economist at RHB Investment Bank Bhd, stated that the interplay of various factors would sustain the growth trajectory for the remainder of the year. She noted that the trade and manufacturing sectors are anticipated to experience further acceleration, complemented by resilient domestic demand stemming from increased consumer spending and investments.
“Our positive outlook is validated by recent trends, such as strong trade and industrial output, along with favorable investment outcomes linked to ongoing multi-year infrastructure projects and supportive business policies,” she outlined in her analysis.
RHB Research has upheld its GDP growth forecast for Malaysia at 5.0 percent for 2024, closely mirroring the official estimate of 4.0 to 5.0 percent.
From a domestic perspective, Chin remarked on the positive outlook for private consumption, underpinned by a healthy labor market. She highlighted that the sustained increase in consumer spending and the revival of tourism would significantly enhance growth in various service sectors, including retail, hospitality, and communication.
“Investment spending is also expected to remain robust, driven by business-friendly policies and the roll-out of initiatives outlined in national master plans,” she asserted.
Chin further emphasized that Malaysia’s trade performance is projected to remain strong, supported by favorable economic prospects in key markets and a global technology cycle.
While the economic outlook appears positive, Chin cautioned against potential pitfalls, including a decline in consumer spending linked to diminished disposable incomes resulting from subsidy adjustments, changes in social assistance frameworks, and the rise in the services tax.
Additionally, she warned that trade performance might be less than anticipated if U.S.-led protectionist measures materialize, particularly in the absence of a property market recovery in China.
Regarding inflation, Chin indicated that the headline inflation rate is expected to stabilize within the 2.0 to 2.3 percent range for the rest of the year, assuming any changes to RON95 fuel prices are postponed until December 2024 at the earliest.
“Inflationary pressures are manageable after the adjustments to diesel prices in Peninsular Malaysia and the revision of the services tax, leading to a 1.8 percent uptick in headline inflation over the first eight months of the year,” she explained.
Looking forward, the inflation trajectory will be influenced by the timing and scale of RON95 subsidy adjustments, demand-driven by Malaysia’s robust growth, and fluctuations in global commodity and food prices.
Chin also stated that the overnight policy rate is likely to be maintained at 3.0 percent due to manageable inflation and stable economic conditions.
Additionally, she confirmed that the fiscal deficit is projected at 4.3 percent of GDP for this year, with a target of 3.5 percent for the next year.
“The recent implementation of a diesel price float in Peninsular Malaysia will augment existing fiscal consolidation measures, such as revisions to the services tax and utilities tariffs, which are expected to enhance the fiscal position compared to 2023,” she noted.
Chin anticipates that the Budget 2025 announcement will aim to balance fiscal sustainability with economic growth initiatives. She is looking for further clarity regarding the RON95 fuel subsidy retargeting, the High-Value Goods Tax, the Progressive Wage System, and new remuneration frameworks for civil servants.
Moreover, the government may consider widening the scope of taxable services and goods under the current sales and services tax (SST) system to boost revenue from consumption tax.
