Economic Focus: Solid growth momentum

• Strong growth momentum to sustain in 2H2024, underpinned by robust investment activities, firm household spending and improving exports. 
• Fed's monetary-easing cycle to spur more foreign fund inflows into Malaysia.
• We are positive of 2024 growth prospects and expect 4.7% GDP growth. 

Strong fundamentals

Our conviction of Malaysia being on the cusp of a multi-year growth cycle has been further strengthened by the stronger-than-expected 1H2024 GDP growth of 5.1%, thanks to the sustained domestic demand and a turnaround in external trade. We believe this solid growth trajectory is likely to remain intact in 2H24 given sustained consumer spending, robust investment activities and improving external trade. This is also corroborated by latest economic stats including retail sales, industrial production and total exports which are all suggesting upbeat prospects in the near term. Meanwhile, domestic demand will remain supported by robust labour market conditions as unemployment rate improved to 3.3% in July 224 (vs 3.4% in July 2023) with historic high labour force participation rate of 70.4%.  

Rising foreign interest in Malaysia

Malaysia's strong growth prospects have not gone unnoticed by the international financial markets as Ringgit emerged as one of Asia's best-performing currency after rallying by 9% YTD, amid a surge in inflows of foreign funds and investments into the ASEAN region. A confluence of tailwinds including Fed rate cuts, on-going Madani government reforms and pro-business strategic policies under a stable ruling coalition has contributed significantly to the rising foreign interest in Malaysia. After achieving record high approved investments in 2021-2023, the winning streak has continued unabated in 2024 with the figures rising 18% y-o-y to RM160bn in 1H2024, outpacing the government's full-year target of 5%. This signifies the strong confidence that foreign investors have in Malaysia, a traditionally non-aligned country which is expected to benefit from the incessant US-China tensions.    

All eyes on Budget 2025 in October 2024 

The unveiling of Budget 2025 on 18 October 2024 will likely be positive for Malaysia's economy as the government is expected to strive toward achieving its socioeconomic goals under the Madani Economy Framework, as guided in its pre-budget statement. Progress on fiscal consolidation including details on further subsidy rationalisation and updates on tax revenue expansion under a better governance framework will be closely followed by the financial market. A narrower 2025 budget deficit is expected, compared to 4.3% in 2024 and 5.0% in 2023 as part of its plan to achieve 3.0% deficit in the medium term. Develoment expenditure is likely to be given a record high allocation  to pump prime the economy given the intensified efforts to make Malaysia a world-class investment destination, especially in high value-added indutries focusing on digitalisation and energy transition.      

Growth momentum remains intact

We remain optimistic of Malaysia's economic outlook which is expected to grow by 4.7% in 2024 - in line with the government's forecast of 4.0% - 5.0%. Fundamentals remain strong as Malaysia's economy continues to take comfort from its resilient domestic demand, underpinned by sustained household spending. Private investment is expected to benefit from improved external environment and positive response to NETR and NIMP 2030 while the government continues with its expansionary fiscal policy to drive economic growth. Key downside risks include slower-than-expected recovery in external demand and heightened geopolitical tensions.       

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