RHB RESEARCH MAINTAINS MALAYSIA'S GDP FORECAST AT 4.6 PCT FOR 2024

KUALA LUMPUR, April 4 (Bernama) -- RHB Research is expecting Malaysia’s gross domestic product (GDP) to remain at 4.6 per cent year-on-year (y-o-y) in 2024, versus the official projected range of 4.0-5.0 per cent.

In a note today, the research house said the growth momentum is anticipated to pick up in the first half of 2024 (1H24), as suggested by its composite leading index for Malaysia.

“Recent data indicates that domestic confidence has shown signs of improvement. Three key proxies, specifically higher manufacturing purchasing managers’ index (PMI); increased imports of capital and intermediate goods; and rising business confidence, suggest that manufacturers’ and businesses’ optimism is up.

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“Moving ahead, GDP growth would be underpinned by a turnaround in trade performance and robust domestic demand.

“The strengthening of the Industrial Production Index (IPI) and export momentum early in the year reinforces our positive view on the external demand outlook,” it said.

On the downside risk, RHB Research said it recognised opposing factors where dampening effects may emanate from the reduced subsidies and revision in consumption tax measures, which cap consumer expenditure and disposable income from a wealth effect perspective.

However, it said the impact would be cushioned by healthy labour demand conditions; continuation of social assistance to targeted groups; and differing impacts across income groups where the higher income group has relatively inelastic demand.

RHB Research also said investment spending is projected to remain robust in 2024.

It said private investment would be buoyed by capacity expansion and business-friendly policies while public investment activities are anticipated to be supported by the continued progress of multi-year projects and the implementation of catalytic initiatives under the national master plans.

“Labour market conditions remain robust with healthy job creation amid expansion in economic activities. The unemployment rate is expected to stabilise around its historical average of 3.3 per cent.

“Both consumer and business confidence indexes have picked up as at the end of 2023, signalling the possibility of healthier retail and business spending going forward,” it said.

In tandem with the improvement in the global economic landscape and resurgence of the global technology cycle, it said Malaysia’s exports are poised to benefit from the growth in electrical and electronics (E&E) and commodity-based exports.

The export momentum is anticipated to strengthen in 1H24, underpinned by a brighter global and regional economic outlook; strengthening economic dynamics of China; and the uptrend in the global technology cycle.

“We maintain our 2024 headline inflation projection at 3.3 per cent. The inflation momentum is envisaged to gain pace in 2Q2024 following the services tax adjustments in March and anticipated rollout of diesel subsidy rationalisation in the same quarter,” it said.

The research firm said the inflation momentum remains tame so far, cushioned by steady food prices amid a continuation of food subsidies and price controls for staple food items.

“Our 2024 current account balance forecast is 2.3 per cent of GDP versus 1.2 per cent of GDP in 2023. The goods surplus is expected to trend higher on the back of higher exports, in tandem with strengthening external demand.

“We also project smaller outflows in the services account, supported mainly by higher earnings from tourism receipts and transportation activities. Tourism receipts are expected to be lifted by higher tourism arrivals and per capita spending,” it said.

RHB Research also maintained its 2024 fiscal deficit projection at 4.3 per cent of GDP.

With the operating expenditure (OE) accounting for more than 95 per cent of central government revenue, it said the adoption of a two-pronged fiscal consolidation strategy: revenue diversification and OE rationalisation: is necessary to contain the fiscal deficit.

“We view that higher revenue collection would be achievable for 2024, supported by higher proceeds of company and individual tax collection amid improved economic prospects and a broader tax base coupled with enhancement of tax collection efficiency.

“The revision in services tax could potentially increase government revenue by RM3 billion. On OE rationalisation, the government is currently in the inceptive stage of phased fuel subsidy rationalisation, following the earlier rationalisation of electricity and water tariffs,” it said.

On the policy front, it said the overnight policy rate (OPR) is likely to be maintained at 3.00 per cent for 2024.

“We see a lack of impetus for Bank Negara Malaysia (BNM) to tweak its policy rate level in 2024, considering the rosier domestic economic prospects amid uncertainties in the inflationary trajectory.

“The wide official inflation range of 2.0 to 3.5 per cent should provide sufficient room against future price movements. The policymakers might hold the OPR rate while assessing the lagged impact of fiscal policy changes on the overall inflationary trajectory and economic momentum,” it said.

-- BERNAMA