KUALA LUMPUR: Malaysia's robust momentum will extend into the fourth quarter of 2024, driven by external and internal factors following impressive gross domestic product (GDP) growth of 5.1 per cent in the first half of this year.
RHB Investment Bank Bhd (RHB Research) economist Chin Yee Sian said both external and internal drivers will boost the growth for the rest of this year.
She stated that trade and manufacturing activities are expected to accelerate further, coupled with continued resilience in domestic demand from increased consumer and investment spending.
"Our optimistic view is reinforced by recent developments such as robust trade and industrial production data, and positive outcomes from investment activities amid ongoing multi-year infrastructure projects and business-friendly policies," she said in a research note.
Therefore, Chin said RHB Research keeps Malaysia's GDP forecast at 5.0 per cent in 2024 versus the official projected range of 4.0 to 5.0 per cent.
On the domestic front, Chin said Malaysia's private consumption growth remains optimistic amid healthy labour market conditions.
She added that continued expansion of consumer spending and improved tourism activities will boost growth in service sectors such as retail trade, accommodation, restaurants, and communications.
"Meanwhile, investment spending is projected to remain robust, driven by business-friendly policies and the implementation of initiatives under national master plans.
"In addition, Malaysia's trade performance is envisaged to stay resilient, bolstered by resilient economic growth prospects in major economies and global technology upcycle," she noted.
Despite optimism about the economic landscape, Chin said there are caveats to the view, including a potential dampening effect on consumer spending due to lower disposable income resulting from the retargeting of subsidies, changes in social assistance allocations, and the upward revision of the services tax.
She also warned that trade performance may be slower-than-expected should US-led protectionism policies take form amid the absence of any property-related recovery in China.
On inflation, she said the headline inflation might stabilises between 2.0 per cent and 2.3 per cent for the rest of the year, assuming any adjustments to RON95 fuel prices are delayed until December 2024 at the earliest.
"Inflationary pressures remain manageable after the diesel price float in Peninsular Malaysia and the adjustment of the services tax, leading to a 1.8 per cent increase in headline inflation for the first eight months.
"Looking ahead, the inflation trajectory will depend on the timing and extent of RON95 subsidy rationalisation, demand-pull given Malaysia's strong growth numbers to-date, as well as fluctuations in global commodity and food price," she added.
Chin also said that overnight policy rate is likely to be maintained at 3.0 per cent given the manageable inflation pressure and stable economic prospects.
Meanwhile, she said the firm maintains the fiscal deficit projection at 4.3 per cent of GDP this year while the target next year may be 3.5 per cent.
"The recent implementation of a diesel price float in Peninsular Malaysia will supplement existing fiscal consolidation measures, such as the revision of the services tax and utilities tariffs, which are expected to improve the fiscal position relative to 2023," she noted.
According to Chin, Budget 2025 announcement is expected to balance fiscal sustainability with economic development efforts.
She said the firm looks into further clarity on the RON95 fuel subsidy retargeting, the High-Value Goods Tax, the Progressive Wage System, and the new civil servant remuneration scheme.
Additionally, the government may consider expanding the scope of taxable services and goods under the current sales and service tax (SST) regime to increase revenue from consumption tax.