KUALA LUMPUR: Economists have upgraded their gross domestic product (GDP) forecasts to between 4.7 per cent to 5 per cent for Malaysia following a robust 5.9 per cent growth in the second quarter of 2024.
OCBC Globals Market Research Senior Asean economist Lavanya Venkateswaran revised her 2024 GDP growth forecast to 5.0 per cent from 4.2 per cent, previously, supported by the bottoming out of the global electronics downcycle, higher investment spending underscoring progress on the government's medium-term economic development plans and resilient household spending.
She forecasts for GDP growth to remain strong in the second half of 2024, averaging 4.9 per cent year-on-year (YoY) versus 5.1 per cent in the first half of 2024.
"This will be at the upper bound of the official 4-5 per cent GDP growth target range for 2024. For 2025, we continue to expect the economy to grow by 4.5 per cent YoY," Lavanya said.
She expects strong GDP growth momentum and manageable inflationary pressures to allow Bank Negara Malaysia to remain on hold for the rest of 2024 and 2025.
BMI - a Fitch solutions company - has also revised its GDP forecast for 2024 to 4.7 per cent from 4.4 per cent.
It said the quarter's GDP exceeded the firm's 5.4 per cent forecast as well as consensus' expectations of 5.8 per cent.
BMI's updated GDP forecast falls in the upper bound of the government's forecast range of 4.0-5.0 per cent.
"As we expected, domestic demand remained the key driver of growth. Timely data from the Department of Statistics Malaysia (DOSM) showed that growth in retail trade volumes accelerated from 3.6 per cent year-on-year (YoY) in Q1 2024 to 5.9 per cent in Q2 2024."
"While headline inflation edged up from 1.7 per cent YoY in Q1 2024 to 1.9 per cent in Q2 2024 due to higher utility prices, price growth remained slow by historical standards. We expect that price pressures will remain benign and maintain our forecast for inflation to average 2.0 per cent this year, down from 2.5 per cent in 2023," it said.
Given policymakers' mitigation measures, BMI anticipates that the recent subsidy rationalisation plans will do little to stoke headline inflation given that diesel only accounts for 0.2 per cent of the overall consumer price index (CPI) basket.
BMI also expects investment across the private sector to be supported by increased capital expenditure across machinery and equipment.
BMI said the external sector will weaken in the second half of the year, despite export growth in Q2 2024.
It cited the latest data from DOSM that showed exports of electronic & electrical products, which account for 38 per cent of total exports, swung from a 0.9 per cent YoY contraction in March to rise 1.7 per cent in June amid the rebound in the semiconductor cycle.
Likewise, exports of palm oil swung from a 20.2 per cent YoY contraction in March to rise 6.3 per cent in June.
"But we anticipate that exports growth will ease over the coming quarters," BMI said.
"It will be difficult for the external sector to continue expanding rapidly against the backdrop of slowing economic activity in both the United States and China in the second half of 2024 (2H24) given that both economies jointly account for more than 25 per cent of Malaysia's total goods exports."
"This is a key reason why we think growth in Malaysia will slow marginally to 4.6 per cent in 2025," it said.