RAM Rating Services Bhd senior economist and head of economic research Woon Khai Jhek
PETALING JAYA: Domestic demand will be the anchor for corporate Malaysia’s economic growth this year driven by private consumption as the economy enters into a stronger phase.
Economic experts are projecting domestic demand to surge between 5.7% and 6.2% this year versus 4.6% last year.
Malaysia’s economic growth or gross domestic product (GDP) rose by 5.9% in the second quarter of 2024 (2Q24) compared with 4.2% in 1Q24.
This stronger GDP growth for 2Q24 was underpinned by stronger private consumption and further recovery in exports amid the global tech upcycle. Economic growth was also supported by greater capital formation activity from capital investments and construction works. The latter was fuelled by the ramp-up in the execution of civil engineering projects and property construction activities.
Official estimates for the country’s GDP growth this year is between 4% and 5%, but would likely be at the higher end of this range.
RAM Rating Services Bhd senior economist Woon Khai Jhek told StarBiz that domestic demand would remain a significant driver of Malaysia’s GDP growth in 2024 and it would expand by 6.2% this year, up from 4.6% in 2023.
“The higher forecast is largely attributable to an acceleration in private consumption growth, which we project to climb to 5.3% in 2024 from 4.7% last year. This is in view of the robust job market environment and supportive financial conditions.
“Furthermore, private consumption growth last year was weighed down by the high base effects of 2022, elevated price pressures and the lapse of large policy support (for example, Covid-19 related financial assistance and Employees Provident Fund withdrawal schemes).
“As these pressures dissipate, private consumption growth should also trend higher this year,” he noted.
The rating agency is maintaining its projection for the country’s 2024 GDP growth at 4.5% to 5.5%, compared with 3.6% last year.
With the economic upturn, RAM Ratings had anticipated at the start of the year that Malaysia would be on track to achieve a higher growth in 2024.
He said domestic demand growth would be lifted by the rebound in investments, namely gross fixed capital formation, into structures and machinery and equipment.
Capital formation into structures, mainly construction of infrastructure and transportation projects, registered a relatively slow recovery last year at 6.1%, primarily hampered by manpower shortages.
“With the implementation pick-up of an 11.6% growth in the first half of this year, we should expect the contribution from this sub-segment to grow substantially.
“Similarly, we expected the strong recovery in machinery and equipment investment growth (first half 2024 at 10.5%) to persist for the rest of this year.
“This is following a notable deceleration last year (2023: 5.2%) amid softer capacity building sentiment due to the slowdown in global growth,” Woon added.
Meanwhile, OCBC Bank senior Asean economist Lavanya Venkateswaran expects domestic demand to be a key driver of growth this year driven by resilient household spending and strong investment momentum buoyed by the public and private sectors.
Government spending would also moderate, consistent with the government’s fiscal consolidation agenda, she pointed out.
“We expect GDP to be supported by the bottoming out of the global electronics export downcycle, higher investment spending catalysed by progress on the government’s medium-term economic development plans and resilient household spending buoyed by strong labour market conditions.
“Our forecast is for domestic final demand growth to increase 5.7% year-on-year (y-o-y) in 2024 compared with 4.6% in 2023, driven mainly by a recovery in household and investment spending relative to 2023,” Venkateswaran added.
“OCBC’s 2024 GDP growth forecast is 5% versus 3.6% in 2023.
“This implies that GDP growth will remain strong in the second half of the year, averaging 4.9% y-o-y versus 5.1% in the first half of the year.
“For 2025, we expect GDP growth of 4.5% y-o-y,” she said.
OCBC Asean senior economist Lavanya Venkateswaran
Furthermore, she said the government’s commitment to deliver on its medium-term economic reform agenda of supporting investments in crucial sectors such as electrical and electronics, increasing foreign direct investments, and following through on fiscal consolidation would play an important role in maintaining the positive economic growth momentum.
MARC Ratings Bhd, in responding to StarBiz, said it expects aggregate domestic demand in 2024 to be higher than in 2023, which exceeded 6% in the first half of the year compared to 4.6% in 2023. This is driven by sustained elevated investments (gross fixed capital formation reached 11.5% in the second quarter of 2024) and continued strengthening of public investment, which grew by 9.1% in the said quarter.
It said the implementation of catalytic projects, in line with several national blueprints such as the New Industrial Master Plan 2030 and National Energy Transition Roadmap, would play a key role in economic growth, particularly in the areas of new energy, trade diversion and diversification, and data centres.
MARC said private consumption is expected to maintain its positive trajectory as unemployment remains low at 3.3% in the first half of the year versus 2023’s average of 3.4%.
It said domestic consumer spending would remain an anchor of economic growth in 2024, complemented by improvements in the export cycle and capital spending, noting that it expects this year’s GDP growth to accelerate to 4.8%.
OCBC’s Venkateswaran, however, cautions that some external headwinds may impact the country’s economic growth. She said these include geopolitical risks and weaker-than-expected global growth while on the domestic front, slower progress on the economic reform agenda is a headwind, in the bank’s view.
