Malaysia’s economy is set to grow near 5% in 2024, outperforming initial forecasts due to stronger-than-expected consumer spending and export performance in the second quarter. The nation’s gross domestic product (GDP) increased by 5.9% year-on-year for the April-June period, exceeding the preliminary estimate of 5.8%. On a quarterly basis, the economy expanded 2.9% from the previous three months.
Bank Negara Malaysia Governor Abdul Rasheed Ghaffour stated that growth will likely hit the higher end of the central bank’s forecast range of 4% to 5% for the year. This marks the second time this year that final figures have surpassed preliminary estimates, indicating a robust recovery after a slowdown to 3.6% growth in 2023 due to weak global demand.
Key drivers of the economic expansion include increased foreign investments in the semiconductor sector and the AI-driven data center boom. Additionally, tourism spending in the first half of the year has surpassed pre-pandemic levels, bolstering private consumption.
Looking ahead, the central bank anticipates sustained growth in the latter half of the year, supported by higher exports, strong household spending, and increasing tourist arrivals. Investment growth will benefit from ongoing multiyear projects, including data centers.
Stronger global demand for semiconductors is expected to enhance Malaysia’s electrical and electronics exports in 2024. Despite anticipated price pressures from higher diesel costs, inflation is projected to remain manageable. The central bank maintains its inflation forecast at 2%-3.5% for the year, with the benchmark interest rate of 3% expected to remain unchanged.
Consumer prices were lower than anticipated in June, even after the government removed diesel subsidies. However, there are no immediate plans to adjust the highly subsidized petrol RON95. Risks to the economy include sluggish growth in China, Malaysia’s largest trading partner, which has impacted export growth.
Optimism about Malaysia’s economic performance has strengthened the ringgit, with analysts at Citigroup Inc. raising their growth forecast for the country to 5.2%. The ringgit, recovering from a 26-year low, is currently the best performer among emerging market currencies. Policymakers are also encouraging the repatriation of overseas income to support the currency. The central bank views the ringgit’s performance positively, reflecting strong economic fundamentals and growth prospects.
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