Economic Focus: Firmly on path of recovery

• Government’s focus to rebuild and restructure economy poised to start bearing fruits
• Recovery in external trade to boost growth momentum
• We are positive of 2024 growth prospects and expect 4.3% GDP growth

Brighter prospects ahead

Malaysia’s economy remains firmly on a healthy growth trajectory as domestic demand is likely to strengthen further with sustained consumer spending and stronger investment activities. Its strong fundamentals and diversified economic structure, coupled with renewed government focus to spur higher economic growth will help ensure Malaysia’s uptrend stays intact. Evidently, Jan 2024 credit demand has demonstrated robust y-o-y growth as loans for households and businesses grew by 6.1% and 5.1%, respectively. Solid overall banking system loans growth of 5.7% in Jan 2024 (vs 5.3% in Dec 2023, 5.0% in Jan 2023) signifies the upbeat economic outlook in 2024. Revival in tourism activities in 2024 will also likely provide a strong fillip, especially with the introduction of visa-free entry for tourists from China and India, further boosting domestic economy.

Robust employment market

Malaysia’s labour market has been growing from strength to strength with unemployment rate coming in at 3.3% as at Jan 2024, compared to 3.6% in Jan 2023. Notably, we are encouraged by the persistent growth in employment market outpacing the growth in labour force, lifting the labour participation rate to a record high of 70.2% in Jan 2024. This will certainly reinforce the positive economic outlook in 2024 given that domestic demand forms the bulk of our economy. In addition, business sentiment remains positive in 1Q24 with confidence indicator at the highest since 3Q22. The implementation of major projects announced in Budget 2024 such as RM10bn Penang LRT, RM11.8bn flood mitigation projects, RM 15.7bn Pan Borneo Sabah phase 1B and RM4.7bn LRT 3 expansion will also ensure stellar economic performance in 2024.

Reversal of negative drag from external trade

Admittedly, Malaysia’s 2023 GDP growth of 3.7% fell short of government’s target of 4% which was largely due to the sluggish external trade which shaved off 0.6% of growth contribution. For 2024, this is set to reverse given the anticipated recovery in external trade especially in Asia which comprises ~70% of Malaysia’s exports. In fact, Malaysia’s Jan 2024 exports registered 8.7% y-o-y growth after 10 consecutive months of y-o-y contraction. We believe Malaysia will benefit from the recovery in global semiconductor shipment given our entrenched position in the global semiconductor supply chain, especially in the packaging, assembly, and testing services. Meanwhile, Malaysia’s strategic push to leverage on the global trend of “China + 1” for industrial value chain diversification has been reflected in the record high approved investments in 2021-2023. Undeniably, this will further uplift Malaysia’s industrial capabilities and boost its value-adding exports.

Growth momentum remains intact

We remain optimistic of Malaysia’s economic outlook which is expected to grow by 4.3% in 2024 – in line with government’s forecast of 4%-5%. Fundamentals remain strong as Malaysia’s economy continues to take comfort from its resilient domestic demand, underpinned by sustained household spending. Key downside risks include slower-than-expected recovery in external demand and heightened geopolitical tensions.

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