KUALA LUMPUR: MIDF Research believes that Malaysia's economy will continue its positive growth momentum in the coming quarters.
Therefore, the firm maintained its forecast that the gross domestic product (GDP) growth this year will be faster at 4.7 per cent compared to 3.6 per cent in 2023.
MIDF Research noted that domestic spending activities will continue to grow on the back of positive labour market conditions, positive income growth and increased tourist arrivals.
"In addition, external demand will recover as Malaysia stands to benefit from improvements in global production and international trade, especially growing demand from major trading partners such as China and the US.
"We also expect the improvement in the electrical and electronics (E&E) trade to contribute to the export recovery this year," it added.
Nevertheless, MIDF Research cautioned that several risks could constrain this year's growth outlook, such as an escalation in geopolitical and trade tensions.
This includes weaker growth in China and the US, as well as a significant slowdown in final demand from major markets due to high borrowing costs.
On the domestic front, it said policy changes may result in higher inflation, which could adversely affect consumer sentiment and their spending plans.
Malaysia's economic growth expanded 4.2 per cent in the first quarter of 2024 (1Q24), surpassing both MIDF Research and market expectations.
It added that the slight upward revision from the advance estimate of 3.9 per cent year-on-year (YoY) was generally aligned with its expectations given the stronger consumer spending and more encouraging growth in the manufacturing and construction sectors.
"Additionally, given the improving global semiconductor sales, we foresee net exports would also return to an expansionary trend underpinned by growing demand from major trading partners," it said.
On quarter-to-quarter (QoQ) basis, Malaysia's seasonally adjusted GDP surged 1.4 per cent, reversing the one per cent QoQ contraction in 4Q23, anchored by the sequential rebound in both domestic and external demands.
"This is an encouraging development as we project the continued expansion in domestic demand will remains key driver of Malaysia's economic growth in 2024, further bolstered by the external trade recovery," the firm said.
MIDF Research also said the stronger public sector investment was in line with the more progress in the construction sector, particularly the ongoing infrastructure developments under the 2th Malaysia Plan (12MP).
"This encouraging trend may continue in the coming period given the expansionary fiscal policy which the government indicated a continued commitment to keep the large RM90 billion allocation a year for development spending until 2025.
"With more jobs being added and more people entering the job markets, we foresee this will continue to support consumer spending," it noted.
The firm also anticipates the continued recovery in exports will eventually result in net exports contributing positively to growth this year.
Looking at the improvement in the current account balance, MIDF Research expects the ratio to increase to 4.2 per cent of GDP in 2024, underpinned by the recovery in trade of goods and further improvement in services trade.
It said the services trade will continue to benefit from the recovery in tourism ector, while the goods trade will recover on the back of improved E&E exports, recovery in global production and restocking activities, and growing demand from major markets.
The firm also said turnaround in the manufacturing sector and sustained positive growth of other sectors especially the services sector is aligned with its expectations for growth to be driven by both robust expansion of domestic demand and recovery of external trade.
Despite concerns over renewed inflationary pressures in some countries, MIDF Research highlighted that most economies also grew at a faster pace in the first quarter of 2024 (1Q24).
"Other economies in the East Asian region, including Malaysia, also experienced more robust expansion with South Korea and Taiwan registering better-than-expected growth, benefiting from growing external demand.
"While we expect most countries would benefit from the recovery in the international trade and production activities, growth in some countries may be limited by elevated inflation and high borrowing costs," it noted.