Export, domestic demand to spur growth

Lee is looking at 4.5% domestic economic growth in 2024.

KUALA LUMPUR: The Socio-Economic Research Centre (SERC) remains cautiously optimistic about Malaysia’s economic growth prospects this year as external factors could impact local conditions.

Its executive director Lee Heng Guie said it is better to remain prudent at the beginning of the year as there are some concerns out there.

“If we look at the stock market, it is quite steady; the only thing we have to do is monitor to see how it will hold up.

“Domestically, people are looking towards Central Database Hub (Padu) and how the rationalisation of subsidies will impact everyone,” he said during SERC’S briefing on Malaysia’s quarterly economic tracker and outlook for 2024.

Despite the caution, Lee is looking at 4.5% in domestic economic growth in 2024, aided by a recovery in exports and continued acceleration in domestic demand.

“Domestic demand will contribute 4.3 percentage points in gross domestic product (GDP) growth while the exports of goods and services will contribute 1.4 percentage points,” he said.

He added that export growth will gradually recover to 4% this year, a turnaround from the estimated decline of 7.4% in 2023.

“The positive factors underpinning the export outlook are improving global demand, a recovery in the electrical and electronic sector worldwide, and increasing demand from the semiconductor industry for chips,” he said.

The gaining popularity of electric vehicles, artificial intelligence and 5G will help spur the semiconductor industry.

Lee expects the manufacturing sector to improve by 3.9% this year and construction to contribute positively to the economy.

“With the revival of construction projects that had been halted for the last few years, plus the ongoing projects, we are bound to see things picking up,” he said.

In addition to this, Lee expects good things to come from the establishment of the Johor-Singapore Special Economic Zone (JS-SEZ).

A memorandum of understanding on JS-SEZ was signed yesterday between Economy Minister Rafizi Ramli and Singapore’s Trade and Industry Minister Gan Kim Yong.

Lee said the collaboration aims to attract investors, enhance cross-border flow of goods and services and people while strengthening the overall business ecosystem.

“In 2022, Malaysia and Singapore were each other’s second largest trading partner.

“The proposed establishment will involve a feasibility study carried out under the Joint Ministerial Committee for Iskandar Malaysia to determine the zone’s focus,” he said.

Lee added that the JS-SEZ is expected to bolster trade and investment and people connectivity and lead to more opportunities from the increasing border trade and rapid economic growth.

In terms of global economy this year, Lee expects it to slow to an estimated 2.7% growth from an estimated 3% expansion in 2023, as the lagging impact of higher interest rates is fully felt in some advanced economies amid the weakening economic data.

“We expect the US economy to grow at a slower pace of 1.5% in 2024 and it may experience a mild recession in the first half due to higher interest rates having a bigger effect on consumer spending and business activity.

“Higher mortgage rates have also dampened activity in the housing sector, which has flattened out,” Lee said.

He added that the risk of a recession in the eurozone has increased, with economic activity data pointing to a stagnation.

“We expect economic conditions to remain subdued in the first half of 2024, restrained by higher interest rates and cautious domestic demand.

“Stabilisation will likely be seen in the second half instead, as industries rebuild depleted inventories while consumer confidence increases on abating price pressures,” he said.

Some of the risks to the global economy in 2024 include geopolitical concerns like the tensions between the United States and China as well as the ongoing conflict in Ukraine and Gaza.

“Amid the softening of crude oil prices on oversupply concerns this year, the risks of geopolitical and climate change could induce a supply shock of commodities, energy and food,” Lee warned.

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