Malaysia’s Economic Growth Trumps Expectations For Two Straight Quarters

A surge in domestic demand, along with the continued recovery in exports, pushed Malaysia’s economic growth beyond economists’ forecasts for the second consecutive quarter in 2024. In a statement released by the Ministry of Finance on August 16, Malaysia’s gross domestic product (GDP) in the second quarter of 2024 (Q2 2024) expanded by 5.9% (Q1 2024: 4.2%), effectively surpassing Bloomberg consensus’ median forecast of 5.8%.

The Q2 2024 growth brought the expansion rate in the first half (H1) of 2024 to 5.1% (H1 2023: 4.1%), putting Malaysia in a comfortable position to cap off the year with a growth in the upper end of the government’s official forecast range of 4% to 5%.

“Malaysia’s rousing economic performance again defied the gruelling global conditions that have sapped demand and growth in many parts of the world. The positive numbers and indicators are proof that the MADANI government’s policy reforms and economic management are bearing results,” says Prime Minister and Finance Minister YAB Dato’ Seri Anwar Ibrahim.

“With these encouraging results, it further motivates us to continue driving the execution of our Ekonomi MADANI reform agenda. With that, the government is confident that our growth momentum will be further strengthened going forward,” he adds.

Domestic demand in Q2 2024 accelerated by 6.9% (Q1 2024: 6.1%), on the back of higher consumer spending over the Aidilfitri and Aidiladha holidays and the Employees Provident Fund’s (EPF) Account 3 withdrawal, as well as an uptrend in capital expenditure deployment in public and private sectors. On the supply side, growth in the quarter was buoyed by a resilient services sector, and favourable growth in other sectors.

Growth in Q2 2024 was in line with improving economic indicators, including:

• The labour market continued its positive momentum. Total employment grew by 2.8% to 16.6 million people. Around 190,000 new jobs were created, helping the unemployment rate to stay low at 3.3%. The growth of salaries and wages in the services and manufacturing sectors also remained encouraging at 3.5% and 1.4%, respectively.
  
  

• Inflation remained benign at 1.9%, against 1.7% in Q1 2024.
  
  

• Industrial Production Index (IPI) increased further by 4.5% in Q2 2024 (Q1 2024: 3.3%). The improvement was driven by positive momentum across all sectors, namely electricity (5.3%), manufacturing (4.9%) and mining (2.4%).
  
  

• Construction’s value of work done jumped by 20.2% to RM38.9 billion in Q2 2024 (Q1 2024: 14.2%; RM36.8 billion). This growth was driven by strong performances in the civil engineering (25.2%) and residential buildings (19.7%) subsectors. It was also supported by substantial increments in specialised trade activities (44.9%) and a better performance in non-residential buildings (7.2%) subsectors.
  
  
• On the external front, Malaysia’s total trade grew by 10% to RM705.6 billion, whereby gross exports rose 5.8% to RM368.8 billion, and gross imports, 15% to RM336.8 billion. Malaysia continued to register a trade surplus, amounting to RM32 billion in Q2 2024.
  
  
• Current account of the Balance of Payments registered a shrinking surplus of RM3 billion or 0.7% of Gross National Income or GNI (Q1 2024: 3.6%; RM16.2 billion). This was due to a narrowing surplus in the goods account and a wider deficit in the primary income account. Nonetheless, services account recorded a smaller deficit mainly driven by higher tourist arrivals. Net foreign direct investment (FDI) was RM9.1 billion (Q1 2024: RM5.5 billion), particularly from Japan, Singapore, Hong Kong, the US and China. These investments were channelled to the manufacturing, information and communication, and wholesale and retail trade sectors.
  
  
• The ringgit strengthened by 0.2% against the US dollar (RM4.7175) in Q2 2024. The turnaround was attributable to the strong domestic economy as well as coordinated efforts by the government and Bank Negara Malaysia (BNM) to shore up demand for the local currency. As at 9 August 2024, the ringgit hit its 16-month high at RM4.42 against the US dollar.

REINFORCING MALAYSIA’S STRONG FUNDAMENTALS WITH NEW GROWTH ENGINES AND FISCAL DISCIPLINE

As a highly open economy, Malaysia remains susceptible to global vulnerabilities. These include continued geopolitical tensions, supply chain disruptions, and the varying growth prospects of major economies, many of which are Malaysia’s major trading partners. However, the robust growth momentum in H1 2024 signifies the country’s strong fundamentals, leading to improved investors’ confidence.

YAB Dato’ Seri Anwar said by further executing the policy reforms envisioned in the Ekonomi MADANI medium-term framework, Malaysia would be able to experience a new economic growth cycle and bring about the necessary fiscal reforms.

“The National Semiconductor Strategy (NSS) launched in May 2024 adds to the MADANI government’s arsenal of policy documents to modernise the economy by building high-value and sustainable industries. Budget 2025, to be tabled on 18 October 2024, will continue the policy execution that began in earnest this year,” says the prime minister.

The stronger-than-expected growth in H1 2024 has also placed the government in a good stead to meet its fiscal deficit target of 4.3% in 2024, while also providing enough space to manoeuvre measures that could support growth for the remainder of the year, if need be.

Nonetheless, the government remains committed to adhering to its medium-term target of tapering the fiscal deficit to 3% or better. Efforts are underway to enhance governance and digitalise public services, which would incrementally widen the revenue base. The government will also continue to identify areas to optimise expenses and reduce leakages.