KUALA LUMPUR: The Malaysian economy is poised to sustain its robust growth as it moves into the fourth quarter of 2024, bolstered by a combination of external and internal factors following a significant GDP growth of 5.1 percent during the first half of the year.
Chin Yee Sian, an economist at RHB Investment Bank Bhd, indicated that several factors will support Malaysia’s growth trajectory in the upcoming months. She highlighted that the trade and manufacturing sectors are expected to gain further momentum, alongside a steady increase in domestic demand driven by rising consumer and investment spending.
“Our positive outlook is underpinned by recent trends, including solid trade metrics and industrial output, as well as favorable outcomes from ongoing investment activities tied to long-term infrastructure projects and pro-business policies,” she noted in her research report.
RHB Research has kept its GDP growth forecast for Malaysia at 5.0 percent for 2024, which aligns with the government’s projected range of 4.0 to 5.0 percent.
From a domestic standpoint, Chin expressed optimism regarding private consumption, bolstered by favorable labor market conditions. She noted that the growth in consumer expenditure and a rebound in tourism will significantly enhance service sector growth, particularly in retail trade, accommodation, and communication.
“Investment spending is also expected to remain strong, driven by government policies that favor business growth and the execution of initiatives outlined in national master plans,” she elaborated.
Furthermore, Chin emphasized that Malaysia’s trade performance is projected to stay robust, driven by positive economic growth in key markets and a global technology upcycle.
Despite this positive outlook, Chin acknowledged several challenges, including the risk of reduced consumer spending linked to lower disposable incomes as a result of subsidy adjustments, changes in social assistance programs, and increases in the services tax.
She cautioned that trade performance could be affected by any protectionist policies from the United States, particularly in the absence of recovery in the Chinese real estate market.
On the inflation front, 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 at least December 2024.
“Inflationary pressures are manageable following diesel price adjustments in Peninsular Malaysia and changes to the services tax, leading to a 1.8 percent increase in headline inflation over the first eight months of the year,” she explained.
Looking ahead, the inflation outlook will depend largely on the timing and magnitude of RON95 subsidy reforms, demand factors arising from Malaysia’s robust growth, and fluctuations in global commodity and food prices.
Chin projected that the overnight policy rate will likely remain stable at 3.0 percent due to manageable inflation and stable economic prospects.
Additionally, she confirmed that the fiscal deficit is expected to stand 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 bolster existing fiscal consolidation measures, including adjustments to the services tax and utilities tariffs, which are anticipated to improve the fiscal outlook compared to 2023,” she remarked.
Chin looks forward to the upcoming Budget 2025 announcement, which is expected to seek a balance between fiscal sustainability and economic growth initiatives. She is keen to see further clarity regarding the restructuring of the RON95 fuel subsidy, the High-Value Goods Tax, the Progressive Wage System, and the new remuneration framework for civil servants.
Additionally, the government may explore broadening the scope of taxable goods and services under the current sales and services tax (SST) framework to enhance revenue from consumption taxes.
