KUALA LUMPUR: Malaysia's economic growth has surprised to the upside, says Standard Chartered (StanChart), which expects the country's gross domestic product to have grown 5.0 per cent in the first half of 2024.
The Asian-centric British bank outlined some contributing reasons why Malaysia's economic growth is so strong during the period.
"Investment activity has turned out to be stronger than expected. Both public and private investment activity has grown strongly. This is despite the soft global outlook narrative.
"That said, we think interest rates are not particularly high in Malaysia given the measured hikes in this cycle; this may have provided an impulse to private sector investment. Meanwhile, public infrastructure projects have continued to drive public investment activity."
StanChart added that foreign direct investment had remained strong, with robust interest in Malaysia's electrical and electronics manufacturing sector.
"Tourism has continued to recover; tourist arrivals are now back to 87 per cent of pre-Covid levels. That said, the positive growth impulse will likely start to fade due to less favourable base effects.
"An improvement in external demand was largely expected. Nonetheless, this is boosting manufacturing and logistics activity."
The bank said the upturn in the global electronics cycle should continue to benefit Malaysia.
"Household spending has remained stable. While we expect easing as labour market conditions soften, the recent change to allow early pension fund withdrawals may help to provide some spending support."
On inflation, StanChart said it had been surprisingly muted taking into account the subsidy cuts and relatively positive growth environment.
"We think it may be a function of the very targeted nature of subsidy cuts, some disinflationary impulse still going through and a relatively managed wage growth environment.
"We are seeing some rise in inflation, and further increases may occur (but) we think Bank Negara Malaysia remains very comfortable in keeping the OPR (overnight policy rate) at 3.0 per cent in 2024."
It added that both headline and core inflation are running well within Bank Negara's forecasts (headline: 2-3.5 per cent; core: 2-3 per cent).
StanChart notyed that the run-rate for both headline and core inflation are at 1.8 per cent year-to-date.
A key factor that the central bank may monitor is the second-round effects of RON95 subsidy rationalisation; this is yet to be announced by the government.
"Overall, we think the risk of Bank Negara's next move is tilted more towards a hike rather than a cut," it added.