Socio-Economic Research Centre executive director Lee Heng Guie.
KUALA LUMPUR: The economic momentum has gained in the first half of the year and is likely to continue into the second half of 2024 (2H24).
According to Socio-Economic Research Centre (SERC) executive director Lee Heng Guie, the economy grew by an estimated 5% for the first half of this year, which has prompted a revision in the growth estimate to 4.5% for the whole year.
“Gross domestic product (GDP) growth estimates are sitting around 5.8% for the second quarter according to the Statistics Department.
“Our estimates will be quite similar,” he told reporters during SERC’S briefing on Malaysia’s quarterly economy tracker for 2H24 here yesterday.
He said the first quarter of this year’s (1Q24) growth was due to an uptick in all sectors, namely, manufacturing, services and construction in particular.
“For the construction sector, the high double-digit growth was strong, even stronger than expectations. We expect these sectors to also push the economy forward for the second half,” he said.
According to Lee, another key factor taking shape and helping bolster the economy is the new private investment cycle.
He said the domestic catalysts and pull and push factors have sustained an upturn in the private investment cycle.
“Securing and sustaining high-quality private investment is crucial to uplift Malaysia’s potential growth, raise productive capacity and accelerate the country’s transition to a high value-added and high-income nation,” he said.
Lee noted there are several reasons why Malaysia is on the cusp of a strong investment expansion cycle, including the country being in a sweet spot in terms of attracting both foreign direct investment as well as domestic direct investment.
He said Malaysia’s strategic location and its neutral foreign policy appeal stands to benefit investors looking to diversify their operations. The country’s private investment growth rebounded by 7.2% in 2022 and 4.6% in 2023.
For 1Q24, the momentum had accelerated further to 9.2% and has a medium-term estimate of between 10% and 13.5% in 2024 to 2026.
Furthermore, Lee said Prime Minister Datuk Seri Anwar Ibrahim has been a passionate advocate for the nation, evident by approved investments last year that hit a record high.
“Malaysia will continue to attract the right kind of quality investment and transform the economy, while pushing for the next economic development.
“Our narrative must be consistently shown,” he said.
On risks to the local economy, Lee said it is at a stage where it is balanced out. As export recovery is taking place, there are strategic plans by the government to drive higher investment as well as measures to boost consumer spending.
“This will in turn mitigate against concerns like the RON95 subsidy rationalisation, and the lagging impact of the recent measures taken on tax, like the service tax rate and low-value goods tax,” he said.
He said the anxiety on the fuel subsidy rationalisation is being felt because the majority of people use fuel. Lee, however, hopes the government’s adjustment will be gradual.
“Perhaps a three-time adjustment rather than an outward float is better, as the impact will be wider for all, including the consumer side,” he said.
As for product consumption, Lee said, using data from 2H24, growth in this area has been rather flat.
Lee explained many employees are struggling to catch up with the rising cost of living, which in turn impacts spending
“What we see now may be a stable labour market, but we still see some rising cost of living. So we still have to be mindful of this,” he said.
Meanwhile, on the global scale, there is a lot hanging on the upcoming presidential elections in the United States, as this is expected to impact the tariff wars and taxes imposed on other countries by the United States.
Lee said former president Donald Trump and current vice-president Kamala Harris have different perspectives in terms of policy, taxes, green energy and other important structural reforms.
“Since both the United States and China are big economies, the outcome of the election will determine a lot.
“If Trump wins, it is likely he will impose a bigger tariff on China and 10% on other countries based on what he has shared.
“Whereas Harris has not made any mention of this yet, she has been more focused on localised measures,” Lee said.
Countries within the European Union are also at the risk of a recession as economic activity data points to stagnation.
“We expect economic conditions in the eurozone to remain subdued in the first half-year of 2024, restrained by higher interest rates and cautious domestic demand.
“Economic stabilisation is likely in 2H24 as industries rebuild depleted inventories, and consumer confidence could improve on abating price pressures,” he said.
Despite the European Central Bank stating its policy rates will be set at sufficiently restrictive levels for as long as necessary, labour costs are still growing which could add to inflation.
For China, however, Lee said they expect their economy to grow by 4.6% this year, compared to an estimated 5.2% in 2023.
