Malaysia’s economy is poised for stronger growth at +4.7% (2023: +3.7%) in 2024 as the Leading Index (LI) signals for an improving growth momentum in the short run.
The pick-up in growth will be supported by the external trade recovery, on top of the sustained growth in domestic spending.
MIDF Research’s (MIDF) Monthly Economic Review today (Mac 1) said they are cautiously monitoring potential downside risks, such as escalation of geopolitical tensions, another round of supply (and global trade) disruptions, fluctuations in the commodity and financial markets, and the possibility of economic recession in the US, which could adversely affect Malaysia’s external demand and overall growth outlook.
On the domestic front, MIDF is closely monitoring the effects of the government’s policy changes on the domestic price outlook, which will hit consumer purchasing power and cost of doing business as well as the overall domestic spending activities.
LI rebounded to +0.3%yoy growth in Dec-23
The LI registered an increase of +0.3%yoy in Dec23 (Nov-23: -0.1%yoy), mainly supported by the rise in the number of approved housing units.
From a month-on-month perspective, the LI also rose by +0.3%mom (Nov-23: +0.5%mom), underpinned by growth in number of approved housing units and Bursa Malaysia Industrial Index.
For the Coincident Index (CI), current economic condition continued to grow at CI grew by +2.3%yoy (Nov-23: +2.6%yoy), the 28th straight month of expansion because of increases in all CI components, excluding industrial production index. The weaker industrial production also led to CI registering the second month of sequential decline by -0.5%mom in Dec-23 (Nov-23: +0.3%mom).
Overall, despite the still modest GDP growth in 4QCY23, MIDF foresees the growth momentum would pick up in 1HCY24 in view of the better LI reading and the recent improvement in export performance.
Malaysia’s economy grew at +3.0% in 4QCY23
MIDF said Malaysia’s economic growth moderated to +3.0%yoy in 4QCY23, lower than the advance estimate of +3.4%yoy. In terms of the sector breakdown, the weaker-than-expected growth reflected the continued weakness in the manufacturing sector which fell further by -0.3%yoy (3QCY23: -0.1%yoy), in line with the weakness in the external demand.
The services sector also registered slower growth at +4.2%yoy (3QCY23: +5.0%yoy), but still showing sustained rise in line with the growing domestic spending activity.
In contrast, other sectors like agriculture, mining and construction registered stronger growth (better than the advance estimates) at +1.9%yoy, +3.8%yoy and +3.6%yoy, respectively, during the quarter.
From the demand side, the moderation in growth in 4QCY23 was mainly attributable to moderation in the growth in private consumption (4QCY23: +4.2%yoy; 3QCY23: +4.6%yoy) and investment (4QCY23: +4.5%yoy; 3QC23: +5.1%yoy) activities as well as continued drag from the net exports (4QCY23: -35.6%yoy; 3QCY23: -22.7%yoy).
Following the more moderate growth in 4QCY23, Malaysia’s GDP growth moderated to +3.7% (2022: +8.7%). The slower growth was as anticipated due to the absence of low base effect (from the pandemic-related restrictions and lockdowns); however, the moderation was larger than expected because of the weakness in the external trade and manufacturing activities.
Exports growth turned positive in Jan-24
Malaysia’s total trade rebounded to +13.3%yoy in Jan-24, marking the first growth in 11 months due to increases in both exports (+3.4%mom) and imports (+5.3%mom) and the lower base in Jan-23. Due to the relatively stronger rise in imports, the monthly trade surplus reduced to a new post-pandemic low of +RM10.1b.
Exports rebounded and registered the first annual growth after 10 months of contraction, growing at +8.7%yoy in Jan-24 (Dec-23: -10.1%yoy) driven by increased re-exports (+4.1%yoy), while the rebound in domestic exports (+10.1%yoy) was mainly explained by the lower base effect.
By product, the exports growth in Jan-24 was driven by higher shipments of petroleum products and palm oil & palm oil-based products.
In terms of destination, exports rebounded and increased in Jan-24 to major destinations such as the US, euro area, and ASEAN, but declined further to China and Hong Kong. From a month-on-month perspective, monthly rise of +3.4%mom in exports was largely due to increased exports of manufactured products (+4.8%mom); overwhelmingly from petroleum products (+63.5%mom), more than offset the decline in E&E exports (-4.2%mom).
Meanwhile, imports grew faster at +18.8%yoy in Jan-24, the fastest growth in since Nov-22, driven mainly by purchases of E&E and petroleum products.
MIDF views the rebound in exports to be an encouraging development in line with our expectation that the recovery in external demand will be contributing towards stronger economic growth this year, in addition to the sustained growth in domestic demand
Ringgit depreciated against the USD
Within the context of growth, MIDF cited that the Malaysian ringgit weakened -0.2%mom to RM4.743, as the dollar appreciated in Feb-24.
On average, the ringgit plunged -1.8%mom to RM4.768. The ringgit touched a new 26-year low, closing on 20 February 2024 at RM4.799 as escalating geopolitical tension triggered a run towards safe haven assets.
Since then, the ringgit appreciated towards month end, benefiting from the decline in dollar as inflation in the US eased further in Jan-24.
Movement in commodity prices failed to provide support for the ringgit despite the Brent crude oil prices surging by +2.3%mom to USD83.62pb.
Economic fundamentals continued to point for a stronger ringgit this year, especially from the expected turnaround in external trade with exports registering the first expansion in Jan-24 after 10 months of contraction.
MIDF continues to foresee the ringgit and other regional currencies would appreciate in 2024, to be supported by the reversal of funds flowing back into EMs and the recovery in external trade.
Low inflation rate continues
Malaysia’s headline inflation rate came in at +1.5%yoy the first month of 2024. The rate plateaued since Nov-23, the lowest since Mar-21.
Non-food inflation stabilised at +1.1%yoy while food inflation moderated to 27-month low of +2.0%yoy. The continued softening of inflationary pressures among others was due to normalisation in the global commodity prices and supportive fiscal policies.
Core CPI inflation also moderated to +1.8%yoy, almost a 2-year low. Given the slowing core inflation, we believe BNM will keep its OPR status quo throughout 2024.
Looking into 1HCY24, MIDF expects a gradual pick-up in overall prices following an increase in utility charges, implementation of higher SST rate to 8.0% (except for food & beverage and telecommunications) and 10% low value goods tax (LVGT).
In the latter half, we opine that it is possible that the roll-out of fuel targeted-subsidy may see higher retail fuel prices.
Other positive indicators towards economic growth includes Malaysia having a resilient and healthy labour market with unemployment rate maintained at post-pandemic low of 3.3% in Dec-23; Distributive trade grew by +7.7% and the Production Price Index (PPI) deflated at softer apace in Jan-24.
