Upward revision of GDP growth forecast with sustained growth prospects ahead

Apex Research has upgraded Malaysia’s 2024 GDP growth forecast to 5.2% from 4.1%, while maintaining the 2025 forecast at 4.6%. The revised outlook reflects stronger domestic spending, improving labor market conditions, progressive income growth, ongoing investment projects, a global technology upcycle, and recovering tourism. Political stability has improved, supporting economic reforms and government initiatives.

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GDP growth forecast

“Following the better-than-expected GDP data and expectations that the positive momentum will extend in subsequent quarters, we raised our 2024 Malaysia’s GDP growth forecast to +5.2% yoy (previous projection at +4.1% yoy) and keeping our 2025 projection unchanged at +4.6% yoy.

“We believe growth will remain resilient and will largely be supported by (i) stronger domestic spending, (ii) stability and gradual improving labour market conditions, (iii) progressive income growth, (iv) execution of multi-year projects from approved investments, (v) resumption of global technology upcycle and (vi) recovery in tourism spending.

“Given that political instability has taken a backseat, economic reformations along with the execution various government-link initiatives and and key economic blueprints will continue to spur growth,” the analysts say.

Inflation inched up in 2Q24

2Q24 headline and core inflation both rose +1.9% yoy, was a slight uptick against previous quarter’s +1.7% yoy and +1.8% yoy increase respectively.

The minor uptick was driven by higher housing and utilities amid water tariff adjustment and service tax on high electricity consumption as well as information and communication services on higher streaming services fee.

“We forecast headline inflation and core inflation at +2.6% yoy and +2.5% yoyrespectivelyin 2024, which is in line with Bank Negara Malaysia (BNM)’s projection of 2.0%-3.5% and 2.0%-3.0% respectively, on the back of the implementation of the diesel subsidy rationalisation, hike of the SST to 8.0%, and resilient domestic demand.”

Ringgit Outperformed

In 2Q24, the MYR appreciated +0.2% qoq to MYR/USD at RM4.7150 as compared to a depreciation of -2.9% qoq at RM4.7222 in the previous quarter. The appreciation was mainly due to a more dovish expectations with consensus pricing in 90.0% chance of the potential rate cut to take place in the upcoming FOMC meeting in mid-September 2024.

Against other regional peers, the MYR demonstrated resiliency, supported by steady economic improvements and positive impacts from domestic structural reforms.

“We anticipate that the MYR will continue to gain ground against the USD as we approach the end of the year, in expectation of more concrete US Federal Reserve’s interest rate cut path. Our 2024 year-end projection for USD/MYR is between 4.20-4.30,” says Apex.

OPR rate

BNM maintained the overnight policy rate (OPR) at 3.0% in the latest monetary policy committee (MPC) meeting in July 2024 which is in line with our in-house forecast. The firm believes that the resilient domestic economy and the manageable inflation and growth prospects will not warrant any changes in the OPR till end-2024.

Key risks

The analysts say that downside risks to ‘our projection include weaker-than-expected external demand amid accelerated inflationary pressure, larger declines in commodity production and a shift in key economic policies’. Externally, further escalation in geopolitical tension, higher-than-expected inflation and a slowdown in global economic growth may dampen economic growth projections.