Economic Focus: Strong tailwinds

• Sustained revitalisation of private investments emerges as a strong pillar of economic growth
• Turnaround in external trade to boost growth momentum in 2H2024
• We are positive of 2024 growth prospects and expect 4.5% GDP growth

All stars aligned

Malaysia is on the cusp of a multi-year growth cycle as the Madani government’s focus to rebuild and restructure the economy has started bearing fruits. We believe Malaysia remains firmly on a healthy growth trajectory as domestic demand is likely to strengthen further with sustained consumer spending and stronger investment activities in tandem with concerted government effort to drive various strategic developments under national blueprints. In addition, a major turnaround in external trade will serve as a strong growth catalyst for Malaysia in 2H2024. Therefore, Malaysia’s solid fundamentals and diversified economic structure, coupled with renewed government focus to spur higher economic growth will help ensure Malaysia’s uptrend stays intact.

Booming credit demand

The strong growth momentum has also been reflected in the banking system loans growth which stood at a commendable 6% in Apr 2024 (vs 4.6% in Apr 2023, 5.3% in Dec 2023). More importantly, the robust credit demand was attributable to both household and business segments which grew by 6.4% and 5.6% respectively, signifying the upbeat economic outlook in 2024. Meanwhile, Malaysia’s equity market has outperformed regionally, gaining RM225bn in total market capitalisation in 5M2024 (~25% 1H2024 GDP) which could have further reinforced the feel-good sentiment on Malaysia’s economy. The positive wealth effect arising from the stock market rally may help to spur more consumption in the domestic economy which remains supported by a robust labour market.

External trade is on the mend

The anticipated recovery in external trade since early 2024 has now come into realisation as Malaysia’s 5M2024 exports and imports rose 4% and 14% respectively. We believe the prospects for external trade in 2H2024 should come in stronger as Malaysia benefits from the global technology upcycle given our entrenched position in the global semiconductor supply chain, especially in the packaging, assembly, and testing services. Continued recovery in tourist arrivals which stood at c.90% of pre-pandemic levels in 1Q24 will also contribute to better exports, supported by higher flight connectivity and visa exemptions. Meanwhile, Malaysia’s strategic push to leverage on the global trend of “China + 1” industrial value chain diversification has been reflected in the record high approved investments in 2021-2023, helping to 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 4.5% 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. Private investment is expected to benefit from improved external environment and positive response to the 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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