KUALA LUMPUR: BMI, a unit of the Fitch Solutions, has upgraded Malaysia's economic growth forecast to 5.0 per cent in 2024 from 4.7 per cent previously following stronger-than-expected gross domestic product (GDP) expansion in the third quarter (Q3).
The research firm said that it also raised growth forecast for 2025 to 4.7 per cent, up from 4.6 per cent previously, adding that the updated forecast would fall in the upper bound of the government's forecast range of 4.0 to 5.0 per cent.
BMI said the outlook for the domestic investment landscape remained resilient as expected, with gross fixed capital formation contributing 2.9 percentage points (pp) to the headline figure.
"Latest data from the Department of Statistics Malaysia (DOSM) showed that the total value of completed construction activity rose for a third consecutive quarter to 22.9 per cent in 3Q 2024, from 20.2 per cent in the second quarter (2Q) of 2024."
"We further expect this momentum to persist in 2025 on the back of multi-year projects across the private and public sectors such as the New Industrial Master Plan (NIMP 2030) and National Energy Transition Roadmap, which will contribute to higher realisation of investments."
Although retail trade in 3Q slowed to 5.9 per cent compared to 7.4 per cent in 2Q, BMI expects private consumption, which contributed 3.0pp to the headline figure, to remain resilient.
"If anything, the new public service compensation scheme, effective Dec 1, which will result in broad pay hikes for civil servants, and the increase in the monthly minimum wage to RM1,700 from RM1,500 in February 2025 will boost consumption next year," it said.
Meanwhile, BMI projects inflation to tick up from an average of 1.8 per cent in 2024 to 2.3 per cent in 2025, pending the details surrounding the RON95 subsidy rationalisation plans as well as the scope of the revised sales and services tax (SST).
However, it expects the government's mitigation measures to ensure that price pressures remain contained.
"Still-benign inflation will support our view that the Bank Negara Malaysia can afford to leave the overnight policy rate on hold at 3.0 per cent for the rest of 2025," it added.
While exports have held up well thus far, BMI said that the external sector will weaken in the coming quarters as the latest trade data are already beginning to show some signs of weakness.
It said the exports of electrical and electronic (E&E) products slowed for a third consecutive month to 10.3 per cent in September from 34.4 per cent in July while outbound shipments swung from a 12.3 per cent expansion to contract by 0.3 per cent during the same period.
"We remain confident in our view that it will be difficult for the external sector to continue expanding rapidly against the backdrop of slowing economic activity in both the US and China given that both economies jointly account for close to 25 per cent of Malaysia's total goods exports."
"This is a key reason why we think growth in Malaysia will slow marginally to 4.7 per cent in 2025," it added.
BMI added that the risks to growth forecast are skewed to the downside should growth in China slow even more than it currently expect.
A second Donald Trump presidency which leads to tariffs being targeted specifically on manufactured goods, will also pose downside risks to emerging markets including Vietnam, Cambodia and Malaysia, BMI said.