PETALING JAYA: Malaysia’s current account surplus is expected to narrow this year due to strong domestic demand and external risks.
Kenanga Research said in a report it now expects the country’s current account surplus to come in at 1.3% of gross domestic product (GDP) in 2024, instead of its earlier projection of 2.7% of GDP.
In 2023, the current account surplus stood at 1.5% of GDP.
The research house explained that while tourism receipts and a robust export performance were positive for the country’s current account, strong domestic demand and external risks have prompted it to lower its 2024 current account forecast.
“We maintain our positive outlook for export-oriented industries, driven by the global technology upcycle and rising demand for artificial intelligence-related products, while tourist arrivals are expected to increase in the fourth quarter of 2024, spurred by the festive season,” Kenanga Research said.
“However, stronger domestic demand, supported by broad salary increases, is likely to fuel imports of intermediate and capital goods, which may exert downward pressure on the current account balance,” it added.
Kenanga Research also said heightened external volatility, especially due to China’s economic uncertainty, was compounded by market instability following Donald Trump’s US presidential win, which could weigh on Malaysia’s economy and the current account trajectory.
Bank Negara data showed the current account surplus narrowed further in the third quarter (3Q) of 2024 to RM2.2bil. or 0.4% of GDP, after a sharp reduction to RM3bil or 0.6% of GDP in 2Q24 from RM16.2bil in 1Q24, or 3.5% of GDP.
“This decline stemmed largely from a reduced goods surplus, compounded by widening deficits in both primary and secondary income accounts. As a share of GDP, the reduction in the current surplus reflects ongoing economic expansion in 3Q24, with GDP growing 5.3%,” Kenanga Research said.
On the ringgit, Kenanga Research said the local currency is projected to average at 4.57 against the US dollar by end-2024, compared with 4.59 last year.
“Strong domestic fundamentals, ongoing fiscal consolidation, and Bank Negara’s steady policy stance should help prevent sharp ringgit depreciation.
“However, macro uncertainties under Trump’s unified government, a higher US federal funds rate, an unfavourable ringgit-to-US-dollar yield differential, escalating US-China tensions, potential geopolitical shocks and China’s economic headwinds may keep the ringgit subdued,” the research house said.
