Malaysia’s Economic Growth in Q2 2024

By Danial Azhar and Rozanna Latiff

KUALA LUMPUR (Reuters) – Malaysia’s economy expanded at its fastest rate in 18 months in Q2 2024, bolstered by robust household spending, exports, and investment, with the central bank anticipating full-year growth near the upper end of its forecast range.

Gross domestic product (GDP) grew 5.9% in the April-to-June period, accelerating from 4.2% in Q1 2024, surpassing analysts’ expectations for a 5.8% rise. This growth marks the highest rate since Q4 2022, when the economy expanded 7.4%.

On a quarter-on-quarter seasonally adjusted basis, GDP rose 2.9%, compared to a 1.5% rise in Q1 2024, according to data from Bank Negara Malaysia (BNM) and the Statistics Department.

For the full year 2024, growth is projected at the upper end of the central bank’s forecast of 4%-5%, driven by strong domestic and external demand, as stated by BNM Governor Abdul Rasheed Ghaffour. He noted, “Household spending will remain the anchor of growth for the rest of this year, alongside continued employment and income expansion, policy support, and strong investment activities.”

In 2023, the economy had expanded less than expected, registering a rise of 3.7% amid weak global demand. Meanwhile, the ringgit is anticipated to gain additional support in the coming months due to narrowing interest rate differentials between the U.S. and Malaysia. The ringgit has recovered from a 26-year-low against the U.S. dollar in February and has now appreciated by 3.3% this year.

Last month, the central bank maintained its key interest rate at 3.00%. It projected that inflation would remain manageable, even as it climbs due to diesel subsidy cuts in June. Headline and core inflation averaged 1.8% in the first half of 2024, with BNM anticipating headline inflation to range between 2% and 3.5% for the year.

Analysts predict that BNM will keep interest rates steady for the remainder of the year, citing potential inflation risks as the government explores further subsidy cuts. Plans to adjust subsidies for RON95 fuel are pending an announcement on implementation.

Mohd Afzanizam Abdul Rashid, the chief economist at Bank Muamalat Malaysia, remarked, “We believe BNM will remain vigilant in their monetary policy, especially regarding prices. They have maintained their inflation forecasts, indicating uncertainties over the country’s inflation outlook.”

Capital Economics noted that despite a better-than-expected performance, Malaysia may face a slowdown due to declining commodity prices, inflation risks, and a diminishing boost from tourist arrivals.