Malaysia's Strong 2Q GDP Growth Bolsters Confidence Amid Global Uncertainties

By Siti Noor Afera Abu

KUALA LUMPUR, Aug 16 (Bernama) -- Malaysia is well positioned to navigate external uncertainties, buoyed by a strong 5.9 per cent gross domestic product (GDP) growth in the second quarter of 2024 (2Q 2024), surpassing the earlier forecast of 5.8 per cent.

Bank Muamalat Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid attributed this to the implementation of fiscal reforms, which have enhanced policy space and boosted investor confidence, as seen in the strengthening of the ringgit and rising stock market indices.

He highlighted that the economy has consistently exceeded expectations during 2Q 2024.

Both domestic and external demand has been robust, with domestic demand growing by 6.9 per cent (compared to 6.1 per cent in 1Q), driven by solid private consumption and investment growth of 6.0 per cent (1Q: 4.7 per cent) and 12.0 per cent (1Q: 9.2 per cent) respectively.

Net exports also rebounded, posting 3.4 per cent growth after a 24.5 per cent contraction in the previous quarter.

"As a result, there is a possibility that full-year GDP growth could hit the upper end of the official forecast range of four per cent to five per cent in 2024. It could slightly exceed 5.0 per cent, supported by stable labour market conditions and policy measures," he told Bernama.

According to Bank Negara Malaysia (BNM), Malaysia’s economy saw a robust expansion of 5.9 per cent in the second quarter of 2024 (2Q 2024) exceeding earlier prediction of 5.8 per cent, bolstered by resilient household spending, vigorous investment activities, and a significant boost in tourism arrivals. 

Governor Datuk Seri Abdul Rasheed Ghaffour said the central bank views Malaysia’s growth as on track to end the year near the upper end of the 4.0-5.0 per cent forecast range.

The country’s economy expanded by 4.2 per cent in 1Q 2024, bringing the first half’s growth to an average of 5.05 per cent. The gross domestic product (GDP) grew by 2.9 per cent in 2Q 2023. 

“The 5.9 per cent GDP growth in 2Q 2024 is the highest since 4Q in 2022,” he said at the second quarter GDP press conference here today.

Meanwhile, Mohd Afzanizam believes that BNM will stay vigilant in its monetary policy, particularly in managing inflation.

He noted that the central bank has maintained its inflation forecast for 2024 at 2.0 to 3.5 per cent, reflecting some uncertainty over the country's inflation outlook.

Among the factors that could drive higher inflation in the second half of the year is rising demand, which may lead to more pronounced demand-pull inflation.

"From our perspective, the focus of monetary policy will be to ensure that the current stance aligns with the inflation risks, while also closely monitoring external factors such as slowing global growth in major economies like the US and China, as well as the geopolitical impacts on supply chains and commodity prices.

"We expect the Overnight Policy Rate (OPR) to remain unchanged for the rest of the year," he said.

Addressing whether BNM's outlook is overly optimistic, Mohd Afzanizam believes it is a reasonable assessment, given the uncertainties stemming from both global economic conditions and domestic policy changes that could push prices higher.

He noted that BNM has maintained its inflation forecast for 2024, and the broad range reflects the central bank's uncertainty regarding inflation prospects.

"Overall, consumer and business sentiments are cautious, which is understandable given the current volatile market conditions. However, economic activity remains robust," he said.

He further highlighted that factors such as increased tourist arrivals, higher foot traffic in retail spaces, rising property transactions, improved access to credit (as evidenced by growing lending), ongoing infrastructure projects and stable labour market conditions have all fuelled domestic consumption and investment.

Additionally, the rebound in net exports, following several quarters of contraction, has also contributed to the overall economic growth.

"On one hand, there are valid concerns about global risks and inflationary pressures, but on the other, the current economic landscape -- with strong consumption, investment from both public and private sectors, and supportive policies -- should help sustain Malaysia's GDP growth in the second half of 2024 and beyond.

"All in all, I believe BNM's statement is fair," he added.

-- BERNAMA