Summary

• Malaysia’s 4Q2024 gross domestic product (GDP) exceeded the advance estimate, bringing the full year growth to 5.1%. The growth is within the official projection and MARC Ratings’ forecast. The sustained expansion of the services sector underscores the resilience of private consumption, which remained a key growth driver, alongside strong external demand. Demand for electrical and electronic (E&E) products continued to support Malaysia’s export performance, driven by the ongoing diversification of its trading partners.
• In January, Malaysia experienced net foreign inflows into its bond market, as concerns over inflation eased due to retaliation on tariffs; this has further led to a dilution over the degree of tariffs by the US. Bond inflows exceeded equity outflows for the month.
• US Treasury (UST) yields trended lower, as inflation concerns caused by tariffs eased given the lower-than-expected tariffs imposed on China by the Trump administration. Tariff retaliation and the potential for its expansion has also raised market concerns on demand destruction.
• Nonetheless, the decline in UST yields will likely be limited, given still elevated inflation and a strong labour market in the US. This will also limit the extent of the current downtrend on the Dollar Index. Over time, overall growth and labour market conditions will play an overarching role in determining if global interest rates and preferences towards emerging markets foreign exchange (EM FX) start to improve, subject to the extent of the Federal Reserve’s (Fed) dovishness.
• Consequently, we foresee limited scope for appreciation in the USDMYR, until such time when demand destruction due to the trade war results in interest rate cuts by the Fed.