Malaysia’s gross domestic product (GDP) expanded by 5.9% in 2Q2024, surpassing the advance estimate of 5.8% (1Q2024: 4.2%). The nation’s household spending growth rate accelerated, while gross fixed capital formation sustained its strong double-digit growth. Additionally, export growth surged to 12.3% in July (June: 1.7%), driven by a 10.6% (June: 0.9%) broad-based increase in manufacturing exports. In July, we upgraded our 2024 GDP forecast to 4.8% from 4.2% and will continue to monitor for further upside potential.
As at August 21, the ringgit appreciated by 4.8% month-to-date (MTD), reaching a 16-month high of 4.38 against the US dollar. The broad dollar weakness that began in July is driven by rising market expectations of a US rate cut in the upcoming September Federal Reserve (Fed) meeting. The favourable currency movement in July had coincided with Malaysia recording the largest monthly foreign inflow year-to-date (YTD) at RM7.8 billion, reversing June’s outflow of RM0.6 billion.
The broad bond market continued to rally in August, reflected in the double-digit decline in US Treasury (UST) and German Bund yields. The UST yield curve bull steepened, becoming less inverted. Bond yields are likely to continue declining with expectations of deeper US rate cuts and stable global inflation. In Malaysia, the 3-year Malaysia Government Securities (MGS) yield fell slightly by 2 bps, while the 10-year MGS yield increased by 4 bps, aligning MGS yields near pre-pandemic averages. The 10-year MGS-UST yield differential narrowed further to -2.5 bps in August MTD (July: -37 bps).
In August, optimism in the financial market reemerged following the recent price correction, which was driven by lower-than-expected earnings in the technology sector and the unwinding of the yen carry trade. Moreover, market-implied rate cuts increased to four cuts from 2-3 cuts for 2024 as the US labour market continues to soften, seen in the unemployment rate rising to 4.3% (June: 4.1%), approaching a three-year high. While July’s Fed meeting minutes and Fed Chair Jerome Powell’s comments during the Jackson Hole Symposium hinted at potential rate cuts in September, the size and path of easing remain uncertain.
US disinflation continued as headline inflation dropped to 2.9% in July (June: 3.0%), while eurozone inflation remained steady at 2.6% (June: 2.6%). Malaysia’s headline inflation remained steady at 2.0% in July, averaging 1.8% YTD. Despite a wide official inflation projection range of 2.1% to 3.6% for 2024, subsidy rationalisation has had limited impact so far, keeping inflation low. Additionally, with the higher growth outlook, Bank Negara Malaysia is anticipated to maintain the policy rate with the flexibility to increase the rate if necessary.