Malaysia’s economy grew by 4.2% in 1Q2024, higher than the advanced estimate of 3.9% (4Q2023: 3.0%), mainly driven by the faster expansion of 4.7% in the services sector (4Q2023: 4.1%). Private consumption registered a healthy 4.7% growth (4Q2023: 4.2%), underpinned by firmer wholesale and retail trade growth of 7.1% in 1Q2024 (4Q2023: 3.7%). Meanwhile, investments grew by a robust 9.6%, surpassing the 2015-2019 average investment rate of 4.6%. The latest 1Q2024 gross domestic product (GDP) growth is consistent with our forecast range of 4.0% to 4.5% for Malaysia’s full-year growth in 2024.
Malaysia’s exports rebounded by 5.2% in 1Q2024 (4Q2023: -7.9%), supported by the sustained recovery in the semiconductor sector. In addition, the positive Taiwan and South Korea exports data reflect broader regional exports recovery. Despite the US imposing higher tariffs, China managed to improve its exports. Nonetheless, the US-China trade war may benefit Malaysia, due to trade diversion, particularly in semiconductors and mechanical products. The relevance of these effects is evident in the improvement in Malaysia’s current account surplus to 3.5% of GDP in 1Q2024 (4Q2023: 0.1%), bolstered by better trade performance with the US (10.1%), ASEAN (3.4%) and China (2.0%).
Malaysian Government Securities mostly rallied in May, tracking the US Treasury market. Net foreign inflows in the local bond market narrowed to RM0.6 billion in April (Mar: RM1.7 billion), led by smaller inflows of RM0.9 billion in government bonds. On a year-to-date basis, the local bond market saw net foreign outflows of RM4.0 billion. Similarly, the US bond market rallied in May following steady US April inflation and weaker-than-expected April retail sales, although the rally was partly reversed after the Federal Reserve (Fed) reiterated its “higher for longer” interest rate stance while seeking firmer evidence of an easing inflation trend. This aligns with our view that there is no clear disinflation trend to prompt the Fed to cut rates for now.
On the other hand, the European Central Bank (ECB) may cut rates ahead of the US, as steady eurozone April inflation has raised expectations of an ECB rate cut in June. The eurozone’s headline inflation held steady at 2.4% in April (Mar: 2.4%), marking the seventh consecutive month being below 3%. The market currently expects three cuts from the ECB by year end. Going forward, the eurozone’s wage growth data will be an important sign of whether inflation will remain persistent and influence the ECB’s easing path this year.