PETALING JAYA: Malaysia’s economy is set to enter 2025 on a strong footing, underpinned by the solid gross domestic product (GDP) trend thus far and positive consumption and investment outlook.
The country’s GDP expanded by 5.3% in the third quarter of 2024 (3Q24), driven by strong investment activity and continued improvement in exports.
Founder and director of Williams Business Consultancy Sdn Bhd and economist Geoffrey Williams said the 3Q24 growth rate was in line with the advance estimate of 5.3% compared to last year.
However, he noted that the growth rate was slower on a quarter-on-quarter, seasonally-adjusted basis, where the momentum moderated to 1.8% (2Q24: 2.9%).
“Overall, the Malaysian economy expanded by 5.2% in the first three quarters of 2024 and only needs to grow at 4.4% in 4Q24 to get 5% for the year.
“So far, the GDP data has been strong in 2024 with 4.2% in 1Q24, 5.9% in 2Q24 and now 5.3% for 3Q24. But it is subject to seasonal factors, data correction and inventory effects,” he told StarBiz.
Williams noted that this was a strong performance, given that the contribution of net trade had been falling since August last year.
“It is actually above the underlying growth potential of the economy and so is potentially inflationary and may turn out lower.
“The factors driving growth are across most indicators, but there was a small contraction in private consumption, even with the Employees’ Provident Fund withdrawals under Akaun Fleksibel and higher Sumbangan Tunai Rahmah payments.”
More importantly, Williams said Malaysia had a stable monetary and fiscal policy, as well as fewer government interferences and disruptive policy plans.
“The government has been very sensible in cutting its interference in the economy and focusing on sound finances and fiscal responsibility.
“Domestic factors have supported growth in the face of a squeeze on net trade, although exports and total trade have grown and imports have also increased, so the contribution of net trade has been lower,” he added.
Williams believes that it will be difficult to sustain the growth momentum above 5% in 4Q24, since the early growth figures for the first half of 2024 were above average.
“Nonetheless, given the growth in the first half of the year, the overall growth for 2024 is likely to be in the 4.5% to 5% range, which is better than what was expected at the start of the year.
“The election of Donald Trump as the United States president will be positive for global trade and growth, so this will set a better environment for 2025.”
Meanwhile, Centre for Market Education chief executive officer Carmelo Ferlito said Malaysia is on track to achieve a GDP growth of 5% this year.
“The international scenario remains uncertain and uncertainty is never good for investors, who may adopt a ‘wait-and-see’ attitude.
“This is the main element to monitor for 4Q24. But in the short-run, I think risks are very limited.” he added.
OCBC senior Asean economist Lavanya Venkateswaran echoed the sentiment that the economy is set to enter 2025 on a strong footing.
“We maintain our 2025 GDP growth forecast of 4.5%, assuming some stabilisation (rather than improvement) in export growth while investment spending remains robust.
“The impending RON95 rationalisation in the second half of 2025 (2H25) will likely impact household spending, but there could be some offset from the frontloading of expenditures in the 1H25,” she said in a research note.
MIDF Research expects the positive outlook for domestic spending to continue, as businesses and consumers have been ramping up their consumption and investment under “more encouraging domestic economic conditions.”
“Concurrently, we maintain our anticipation that the recovery in exports will likely persist into 2025, driven by continued improvements in the electrical and electronics trade.
“On the downside risks, we are still cautious that weaker demand from major countries, namely the United States and China and the escalation in geopolitical and trade tensions, could hurt the outlook for external trade and domestic production activity,” the brokerage said.
MIDF Research said the possible tightening of trade rules by the United States and escalating geopolitical and trade tensions could also disrupt global trade flows.
“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.”
