Founder and director of Williams Business Consultancy Sdn Bhd and economist Dr Geoffrey Williams.
PETALING JAYA: In spite of the better-than-expected economic performance so far this year, economists still remain cautious amid remaining uncertainties for the second half of 2024, especially on the external front.
Founder and director of Williams Business Consultancy Sdn Bhd and economist Geoffrey Williams said external factors can affect net trade.
“Although exports and total trade have increased, imports have also increased faster than exports, so the contribution from net trade has been falling significantly since August last year.
“Thus, global headwinds remain,” he told StarBiz.
Additionally, Williams said the economy could also face domestic headwinds.
“Domestic factors such as the Employees Provident Fund’s (EPF) Akaun Fleksibel withdrawals will support consumer demand.
“But so far, these have been below the expected RM25bil and most of this has already filtered into the economy. So there will still be more to come from this source, but it looks more conservative than expected.”
Moreover, Williams said that while inflation “is currently at historical normal levels,” he noted that should the economy grow exponentially, it could signal future inflation that must be tackled immediately.
“We do not expect interest rate increases, but prolonged above trend growth raises the upside risk of higher interest rates.
“Policy should be focused on both price and growth stability, so lower growth is desirable in the second half of the year to avoid overheating.”
The Statistics Department announced last week that Malaysia’s inflation grew 2% year-on-year in July, which represented the same rate of growth from the previous month.
The rate of increase in the consumer price index was slightly below the expectations of market observers, who had projected a 2.1% increase, according to a Reuters poll.
Meanwhile, the central bank has maintained the overnight policy rate at 3% since May 2023.
Separately, Centre for Market Education chief executive officer Carmelo Ferlito also believes that uncertainties in the second half of the year could potentially emanate from the upcoming United States election in November.
“This may be the biggest international tension,” he said.
On the external front, TA Research said it anticipates a steady improvement in Malaysia’s trade momentum this year.
“A potential upswing in external demand, particularly from China – our primary export market – adds a promising dimension to the economic landscape.”
The research house said the rebound in demand from China suggests that Malaysia could benefit by increasing its trade volume with the country.
“This expected turnaround in demand, especially from such a significant trading partner, bodes well for Malaysia’s export-driven sectors.”
However, TA Research noted that new risks have emerged as China’s economic slowdown has continued.
“Chinese industrial production growth slowed in July while unemployment rose, highlighting an uneven recovery in the world’s second-largest economy despite recent government measures to stimulate expansion.
“More than a year and a half after lifting stringent Covid-19 measures, the much-anticipated post-pandemic recovery has been brief and less robust than expected. A property crisis and high unemployment have weighed on investor confidence.”
Additionally, the research house noted that with Donald Trump’s odds of winning the US presidential election in November 2024 soaring, it said global markets and investors are anxious about what Trump 2.0 would mean for the United States and global economy.
“We are no exception. In fact, Bank Negara is considering a few economic scenarios, both the upside and downside. The US-China trade and tech rivalry will benefit Malaysia not only via continued trade diversion.
“When the Trump administration slapped a trade tariff on China in 2016 to 2019, imports from Malaysia to the United States grew by 7.7% per annum in 2018 to 2022.”
Malaysia’s gross domestic product (GDP) grew 5.9% year-on-year in the second quarter of 2024 (2Q24), buoyed by stronger household spending, business investments and exports.
The 2Q24 GDP performance was also slightly higher than the 5.8% forecast in a Reuters poll and advance estimate released by the government last month.
Ferlito said Malaysia is on track for a strong economic performance for this year.
“Nevertheless, I am always of the opinion that looking at the different components of GDP is much more important than the GDP performance itself. For example, if we had a 10% GDP growth that was driven by government spending that was financed by debt, then that would be bad news for the economy.
“The good news from the 2Q data is that despite GDP still very much being driven by domestic consumption, private investments are gaining traction and there are signals that this may be a trend.”
Looking at the various sectors, Ferlito said the manufacturing and agriculture segments gained pace when compared to the previous quarters.
“Instead, construction may slow down to a more structural level in the second half of the year,” he said.
Williams, meanwhile, said the latest GDP data was “very positive”.
“However, since the Covid-19 lockdowns, economic growth has been very volatile.
In 2023, the forecast was 4-5% growth and most analysts were in that range, but the outcome was 3.6%.
“The current data is above the underlying growth trend potential. If it returns to normal growth trends the outcome would be 4% to 4.5%.”
TA Securities said it anticipates a continuation in economic growth, but with a slight moderation in the remaining quarters of this year.
“Our cautiously optimistic outlook is tempered by the elevated risk from external sectors, particularly the potential global economic slowdown due to global monetary tightening and China’s slower-than-expected economic recovery.
“This could adversely affect export performance, as Malaysia’s external trade is heavily reliant on the economic health of our key trading partners, namely China and the US.”
MIDF Research, meanwhile, has revised upwards its 2024 GDP growth forecast to 5% and above.
“We foresee the positive outlook for domestic spending to continue, both by businesses and consumers given the more encouraging domestic economic condition.
“We anticipate the recovery in exports will continue, as we expect continued improvements in the electrical and electronics trade continuing into the latter part of the year.”
On downside risks, the research house said it is still cautious that weaker demand from major countries (namely the US and China) and the escalation in geopolitical and trade tensions, could hurt external trade outlook.
“On the domestic front, we are closely monitoring the adverse effect on domestic demand from possible re-acceleration in domestic inflation, which may be triggered by the planned policy changes by the government and other supply shocks.”
Hong Leong Investment Bank, meanwhile, said economic expansion is expected to be sustained in the second half of the year, on the back of higher household spending and tourist arrivals, spurred further by supportive income measures such as the civil servant wage hike and EPF Account 3 withdrawals.
“Continued improvement in trade activity is also expected to lift GDP growth, aided by low base effect and the gradual recovery in the global tech sector.
“In addition, further progress of multiyear projects and healthy investment intentions will support investment growth,” it said.
