S&P:Sustained export recovery to spur growth

PETALING JAYA: Standard & Poor’s (S&P) Global Ratings is predicting a stronger export recovery to drive gross domestic product (GDP) growth for Malaysia this year, while projecting an overall GDP expansion of 4.3% for 2024.

The global ratings group published its forecasts in a report titled Economic Outlook Asia-Pacific Q3 2024, and along with Malaysia, its focus were also on the heavyweight economies in the region including China, Japan, India and South Korea.

According to S&P Global Ratings Asia-Pacific senior economist, Vishrut Rana, Malaysia should expect to see further recovery in trade this year, following a weak trade performance in 2023.

“Trade will be supported by broad manufacturing activity and goods demand. Commodity prices are flat, however, which is restraining fuel-related export growth,” he told StarBiz.

In addition, he observed that electronics exports have been subdued so far this year but are likely to improve given the rising global electronics demand.

Vishrut said risks to Malaysia’s external outlook include a sharper-than-expected slowdown in global growth that could dampen demand for goods and electronics.

He said this can be exemplified by a possible slower growth in China, with exports to the Middle Kingdom having been weaker than overall exports this year.

Looking back into domestic-related factors, he said steady demand at home and a gradual improvement in manufacturing activity are supporting Malaysia’s growth outlook, while noting that inflationary pressures remain broadly contained.

On the other hand, he believes, as do other economists, there could be some nationwide upside pressures if the impending increase in RON95 fuel prices were to materialise later this year as energy-related expenditures are influential in household budgeting.

“RON95 fuel price adjustments are likely to be pervasive, given their high impact on many. There may be targeted assistance for households to smooth the transition to higher prices,” he said.

In the report, co-written by Vishrut and Asia-Pacific chief economist Louis Kuijs, S&P Global Ratings has estimated Malaysia’s inflation to stay at 2.8% for 2024.

At the same time, it is anticipating Bank Negara to keep the overnight policy rate unchanged at 3% throughout 2024, while predicting the central bank to lower rates to 2.75% next year.

Separately, the ratings house is of the opinion that the ringgit will improve marginally to settle at approximately RM4.66 against the greenback by year-end.

Meanwhile, Sunway University professor of economics Dr Yeah Kim Leng, who is projecting Malaysia’s GDP to grow at 4.8% for the whole of 2024, agrees with S&P that the current inflation rate has been moderate, below its long-term trend of 2% to 2.5%.

He told StarBiz that the recent diesel subsidy rationalisation will edge inflation closer to the long-term level but any increase is expected to be marginal and one-off due to the continuing subsidies being provided to the targeted groups.

In tandem with S&P’s forecast, Yeah said headline inflation is projected to hover around the 2.5% to 2.8% band this year, noting that for the relatively small number of diesel vehicle owners, a targeted subsidy of RM200 per month will help them defray the higher expenses due to the floated price.

“Hence, the purchasing power of low-income households are not expected to alter much while the upper and high-income households have savings and income power to absorb the market-based fuel prices,” he said.

Economists last week have expressed mixed feelings about Malaysia’s trade growth due to the continued narrowing of the trade surplus, with Carmelo Ferlito at the Centre for Market Education and the Socio-Economic Research Centre’s Lee Heng Guie of the general opinion that the trade trend should remain healthy, going forward.

In a slight contrast, economist Prof Geoffrey Williams has expressed concern that the shrinking trade surplus may hold back GDP growth, while saying that ultimately, it will be overseas demand that will spur exports.

Concurrently, looking at Asia-Pacific with a broader lens, Vishrut and Kuijs are raising their 2024 China GDP growth forecast to 4.8% from 4.6%, despite a sequential slowdown in the second quarter.

However, they noted that the combination of subdued consumption and robust manufacturing investment will weigh on Chinese prices and profit margins.

Nevertheless, for the rest of the region, they forecast export-intensive economies to see growth improving this year, in a similar vein to Malaysia, while those that are more sensitive to higher interest rates or inflation will see momentum weaken.

“Inflation pressure has eased in the region but the prospect of delayed US policy rate cuts is leading Asian central banks to do the same and take other measures to protect domestic currencies.

“Emerging markets could be tested if US rates were to rise further and capital outflows intensified,” they said.

More importantly, from a Malaysian perspective, Vishrut and Kuijs anticipate the importing of goods by China, something of key importance internationally, will continue to recover this year and next.

They observed that China’s goods import volumes have recovered gradually since troughing in 2022 amid the depth of the slump caused by the prolonged lockdowns, tracking with a lag on the reopening of its economy.

“The recovery in outbound tourism spending has been more recent and fast,” they added.

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S&P , GDP , rating , outlook


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