MIDF Research expects external demand to contribute positively as net exports of goods were higher than a year ago.
PETALING JAYA: Domestic demand will continue to be the key driver of Malaysia’s economic growth in the first quarter of 2025 (1Q25), underpinned by persistent growth in private consumption considering the stronger expansion in retail trade and sustained rise in the services sector.
The finalised 1Q25 gross domestic product (GDP) data is scheduled for release today.
A healthy labour market, sustained employment growth with high labour force participation, increased tourist arrivals (and spending) as well as the absence strong price pressures will remain as positive fundamentals supporting local economic growth in 1Q25, said MIDF Research.
Taking into account the recent indicators and updates, the research house estimates the full-quarter GDP growth for 1Q25 will be similar to the advance estimate of 4.4% year-on-year (y-o-y), moderating from the 5% y-o-y growth in 4Q24.
The research unit said it expects a persistent growth in private consumption considering the stronger expansion in retail trade which grew by 6.8% y-o-y in 1Q25, and sustained albeit marginally slower rise in services sector as shown in the advance estimate.
“With employment growth growing robustly at 3% y-o-y in 1Q25, continued expansion in economic activities and increased labour demand also kept unemployment rate low at 3.1%, with unemployment count falling further by 5% y-o-y,” the research house said in a report yesterday.
Meanwhile, inflation remained low and stable as the headline consumer price index (CPI) increased slower at 1.5% y-o-y in 1Q25.
“Although core CPI rose faster at 1.9% y-o-y, it still signalled underlying demand pressures remained under control.
“We remain positive, despite challenges to growth outlook from the uncertainties on the external front, Malaysia can still maintain growth this year backed by growing domestic demand,” MIDF Research said.
Meanwhile, the research house expects external demand to contribute positively as net exports of goods were higher than a year ago.
This was attributable to relatively more robust growth in goods exports vis-à-vis goods imports, although the pace of growth was more moderate from the previous quarter.
“In particular, the domestic exports of goods grew at 4.8% y-o-y on the back of increased shipments of electrical and electronics products, palm oil and palm oil products, machinery, parts and equipment and rubber products.
“In terms of markets, sustained growth in exports to the United States and Taiwan more than offset the weakness in exports to China, Japan and several Asean countries,” MIDF Research said.
The research house added the moderation in imports of goods can be explained by slower rise in purchases of intermediate and consumption goods, while imports of capital goods rose faster at 16.8% y-o-y during the quarter and consumption goods at 6% y-o-y.
“Overall, we expect exports of services will also contribute positively to 1Q25 GDP growth following further improvement in tourism activity and increased tourist arrivals,” MIDF Research said.
“For the year, we still forecast Malaysia’s GDP growth to moderate to 4% (from 5.1% growth in 2024), where domestic demand will be the key contributor to growth mitigating the effect of slowdown in external trade,” MIDF Research said.
Despite de-escalation in trade tensions recently, the research house said it remains cautious that the uncertainties from the global trade war and possible shocks to the global supply chain will be among the downside risks that could affect Malaysia’s growth outlook this year.
