KUALA LUMPUR: Malaysia has shown s signs of recovery from the second half of 2023 (2H23), marked by a stronger-than-anticipated year-on-year growth of 3.3 per cent in the third quarter (Q3).
HSBC said despite grappling with a downturn in global trade, particularly in the manufacturing sector, which contracted by 0.1 per cent YoY in Q3 after a 0.1 per cent growth in Q2 of 2023, there are encouraging trends in trade, with export declines shrinking to single digits since October.
"The weakness was mostly led by a sharp correction in global commodity markets, particularly oil, liquefied natural gas (LNG), and palm oil," it added.
HSBC Global recently revised Malaysia's growth forecast, predicting a 4.1 per cent growth for 2023 (up from 3.8 per cent), considering the positive outcomes in Q3 and an anticipated gradual uplift in the trade cycle.
"Despite containing inflation, with headline inflation cooling below two per cent YoY, Malaysia faces potential risks from the 2024 Budget changes, including a two-percentage-point hike in the services tax and reductions in fuel subsidies.
"The inflation forecast for 2023 has been slightly trimmed to 2.5 per cent, while the 2024 forecast remains at 2.4 per cent," said HSBC.
Moreover, Bank Negara Malaysia has maintained the policy rate at 3.0 per cent since May, in contrast to neighbouring countries that recently resumed rate hikes.
HSBC emphasised that the contributing reason is due to Malaysia's well-controlled inflation, partly attributed to ongoing subsidies.
"Our expectation is for Bank Negara to maintain this stance for an extended period until the conclusion of 2024, potentially followed by a 25 basis points rate cut in the first quarter of 2025.
"However, there could be a shift towards more tightening if inflation surges following the transition to targeted subsidies in 2024," it added.
HSBC noted that the nascent recovery in the global electronics cycle, observed in countries like South Korea and Singapore, provides hope for Malaysia's exports.
"Consistent foreign direct investment (FDI) inflows position Malaysia as one of the top recipients in Asean, enhancing manufacturing sector capacity for a robust rebound when the trade cycle turns.
"Additionally, Malaysia's tourism-related sectors, buoyed by initiatives such as a mutual visa exemption program with China, contribute to the country's economic resilience and competitiveness," it added.