Economy’s growth in the first quarter is driven by improved trade, tourism, and consumer spending, says economist.
For the first four months of 2024, Malaysia posted the highest values ever for trade, exports and imports, with trade growing by 8.3% to RM912.27 billion. (Bernama pic)
PETALING JAYA: The better than expected gross domestic product (GDP) growth of 4.2% in the first quarter of 2024 (Q1 2024) reflects positive trends in the Malaysian economy, say economists.
Malaysian Institute of Economic Research (MIER) senior research fellow Shankaran Nambiar said the economy’s growth has been largely driven by improved trade, tourism, and consumer spending.
“If we are able to maintain the momentum, our growth in 2024 will very easily fall within the range (set by Bank Negara Malaysia (BNM)). It will probably be closer to the upper end than we had expected earlier in the year,” he told FMT Business.
BNM had earlier projected the Malaysian economy to grow about 4% to 5% this year from a disappointing 3.7% in 2023.
For the first four months of 2024, Malaysia recorded the highest values ever for the period for trade, exports and imports, with trade growing by 8.3% to RM912.27 billion compared to the corresponding period in 2023.
The tourism sector is also on the rise with 5.8 million tourists in the first quarter of 2024, a 32.5% growth compared to last year’s 4.3 million. Meanwhile, consumer spending grew at 4.7% in Q1 2024 compared to 4.2% in Q4 2023.
Nambiar also added there is a likelihood that inflation might inch up with the upcoming fuel subsidy rationalisation.
“There will probably be a one-time spike, but that can be kept under cap if unscrupulous traders are carefully monitored,” he added.
Prime Minister Anwar Ibrahim signalled last week he was in no rush to cut fuel subsidies on concerns it would spur price pressures and strain consumption.
Center for Market Education CEO and economist Carmelo Ferlito said while the strong Q1 GDP growth was positive, it is more important to look at the different components that make up the economy.
“The most positive fact is the acceleration of investments, the most important component of GDP if we look at long-term sustainable development,” he told FMT Business.
Private investment grew by 9.2% in Q1 2024 compared to 4.7% in Q1 2023, while government investment grew by 11.5% in Q1 2024 from 5.7% a year ago.
He said the Q1 GDP growth is in line with the projection of 4-5% target for 2024. “However, the international scenario is still very much uncertain and in evolution.
“It is important to do what we can do domestically to keep the investment momentum, in particular with pro-market reforms which can also help the economy to be shielded against strong and bad winds from abroad,” he added.
On headline inflation, Ferlito said it is good to see inflation below 2% and it is important to keep on monitoring the effect of government spending on money supply to be sure that inflation stays where it is.
BNM has projected headline inflation to remain moderate this year at between 2% and 3.5%.
Contrarian view
Meanwhile, Capital Economics expects Malaysia’s GDP to grow by 3.5% this year, which it noted is lower than the consensus forecast of 4.2%.
In contrast with other analysts, the research house thinks consumer spending, which accounts for 60% of GDP, will likely weaken.
“The softening labour market will also curtail private consumption. The ongoing decline in job vacancies suggests that the deceleration in employment and nominal wage growth has further to run,” it added.
Capital Economics also expects the recovery in goods exports to slow in the near-term due to weaker demand growth from the US, while services exports are likely to stagnate since the recovery in the tourism sector has matured, it added.
