Malaysia's GDP Growth Momentum To Taper Off Going Into 2H 2024

KUALA LUMPUR, Aug 5 (Bernama) -- Malaysia’s gross domestic product (GDP) growth momentum is expected to taper off going into the second half of 2024 (2H 2024), said Kenanga Investment Bank Bhd (Kenanga IB).

Nonetheless, due to better-than-expected performance in 1H 2024, resilient domestic demand and continued expansion in key sectors, Kenanga IB has maintained its GDP growth forecast for 2024 at 4.5 per cent to 5.0 per cent, with an upside bias toward the upper end of the range.

It said this was compared to the 3.6 per cent growth in 2023.

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“For 2025, we project an expansion of 4.9 per cent, anticipating the economy to normalise and continue its steady expansion,” it said in a research note today.

Kenanga IB said inflation is projected to rise to 2.6 per cent in 2H 2024 due to increased consumer spending, diesel cost pass-through, higher tourist spending, and geopolitical crises.

“Following the postponement of the RON95 fuel subsidy rationalisation to possibly 2H 2025, we revised the 2024 inflation projection to 2.2 per cent, down from 2.7 per cent previously.

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“Additionally, the planned salary increase of over 13 per cent for civil servants in December is likely to accelerate inflation to an average of around 3.8 per cent in 2025,” it added.

Kenanga IB said Bank Negara Malaysia (BNM) is expected to keep the overnight policy rate (OPR) at 3.00 per cent for the rest of the year, possibly extending this stance well into 2025.

It said this approach aims to manage inflationary pressures from the impact of subsidy rationalisation while supporting economic growth amid ongoing fiscal reforms.

“The ringgit, after a prolonged period of weakness, is expected to strengthen further as the US dollar index (DXY) is expected to decline in the fourth quarter of 2024, driven by a highly expected US Federal Reserve (Fed) rate cut in September.

“With fiscal consolidation, a stable BNM policy rate and solid growth prospects, the ringgit may strengthen to 4.42 against the greenback by end-2024,” it said.

Kenanga IB said demand for Malaysian bonds is expected to stay strong throughout the year, supported by anticipated Fed rate cuts, an undervalued ringgit, and a stable OPR.

“Key drivers include the MADANI framework, increased foreign direct investment, favourable investment policies, and renewed economic cooperation with China.

“Sovereign credit ratings with a ‘stable’ outlook from S&P Global Ratings and Fitch Group further boost attractiveness, with potential rating upgrades in 2025 on improved public finances and governance,” it said.

Kenanga IB said bond issuances in Malaysia are projected to decrease to RM175.0 billion-RM180.0 billion in 2024 from RM190.9 billion last year due to a lower fiscal deficit and reduced refinancing needs.

“We project the fiscal deficit to narrow to 4.6 per cent of GDP. The 10-year Malaysian Government Securities yield is forecasted to hover around 3.70 per cent in the near term, reaching 3.56 per cent by year-end, supported by strong local bond demand and lower supply,” it added.

-- BERNAMA