Summary

• Malaysia’s 2024 gross domestic product (GDP) advance estimate read 5.1%, within the official projection and MARC Ratings’ forecast. Overall business activity was healthy, particularly with a sharp rise in exports in December of 16.9%, while consumer spending and the services sector remained robust,. Strong overall exports, despite the decline in exports to China, reflected the diversification of trading partners.
• Foreign outflows from Malaysia’s bond and equity markets continued throughout 4Q2024, driven by concerns that Trump’s tariff and fiscal policies will likely prove inflationary. However, overall outflows slowed slightly in December compared to November.
• The rise in the 10y US Treasury (UST) to an interim peak of 4.80% on January 13 was notable, mirrored by a similar peak in the Dollar Index. Bargain hunting and lower-than-expected tariffs on China helped yields decline in the second half of the month.
• Interest rate rhetoric in the US remained hawkish, following the recent increase in the US Federal Reserve’s (Fed) expectation of higher interest rates by end-2025 and end-2026, and a change in the composition of committee members. On the other hand, the eurozone’s growth remained weak, and is likely to approach 1% in 2025, compared to US growth of more than 2%.
• We forecast Malaysia’s inflation to rise to a manageable 2.6% in 2025 (2024: 1.8%), amid sustained GDP growth of 5.0%. As such, we believe Bank Negara Malaysia will maintain its overnight policy rate at 3%.