KUALA LUMPUR (Oct 21): Malaysia is on track to achieve its gross domestic product (GDP) growth target of between 4.5% and 5.5% this year given the anticipated stronger-than-expected third quarter (3Q) data, said economists.

The Department of Statistics Malaysia on Monday reported that GDP is projected to grow 5.3% in the July-to-September quarter. The projection is higher than Bloomberg’s median forecast of 5.1%, but lower than 5.9% growth in 2Q.

“While more data breakdown will be released in the final GDP print on Nov 15, Malaysia is on track to see strong growth this year,” HSBC Global Research said in a note on Monday. The research house expects that Malaysia’s GDP growth will accelerate to 5% in 2024.

HSBC Global previously flagged Malaysia’s lag in trade recovery; however, the country is ultimately catching up as supported by the 3Q trade print trend, despite a downside surprise in the September data, it noted.

“Malaysia’s manufacturing sector, a traditional pillar of growth, continues to steam. After growing around 3.3% y-o-y (year-on-year) in 1H (first half of 2024), industrial production growth almost doubled in 3Q,” it said.

Electrical and electronics exports have also rebounded due to the improved global consumer electronics demand. On commodities, palm oil continues to register double-digit growth, but oil and liquefied natural gas exports remain a drag.

UOB Research, meanwhile, said that the official advance estimate data of 5.3% was lower than the research house's estimate of 5.7%.

However, its projection for the rest of the year remains unchanged for now, supported by low base effects in 4Q2023 and ongoing positive catalysts for growth, including a salary hike for civil servants in December this year.

“This continues to support our 2024 full-year real GDP growth forecast of 5.4%,” it said.

For 2025, Malaysia’s economic outlook is expected to grow at 4.7%, supported by the expansionary Budget 2025 announced last Friday, coupled with the continued implementation of national master plans, UOB Research said.

Capital Economics, on the other hand, expects that Malaysia's GDP growth will slow if inflation rises due to the withdrawal of food and fuel subsidies, which impact consumer spending.

“Looking ahead, we think the economic growth will soften further. The 2025 budget entails a decline in public investment which suggests to us that the strength in non-residential construction (which has persisted throughout this year) is unlikely to last,” it said.

The subsidy cuts may have an impact on inflation, but the minimum wage hike proposed in the latest budget could partially offset the impact of higher inflation, it said.

"We expect global commodity prices to decline over the coming quarters which will also weigh on economic activities in Malaysia. Global demand is also set to remain weak in the near term which suggests any recovery in electronics exports will be gradual. Elsewhere, with the post-pandemic recovery in the tourism sector now having matured, growth in services exports should soften," it flagged.

Nonetheless, the independent research firm expects Malaysia’s GDP growth to ease to 5% next year from 5.5% this year and believes that the Bank Negara Malaysia will keep interest rates unchanged at 3% for the "foreseeable future" as inflation is set to rise on the back of subsidy cuts. 

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