KUALA LUMPUR: Private sector consumption and investment spending are expected to provide more support to the gross domestic product (GDP) this year which will complement efforts by the public sector to boost infrastructure spending.
OCBC Bank said its GDP forecast of 4.2 per cent for the year underscored a cautiously optimistic growth outlook after the fourth quarter (Q4) figure came in at 3.0 per cent versus the advance estimate made by the Department of Statistics Malaysia at 3.4 per cent.
This led to the full-year GDP to be revised lower to 3.7 per cent from 3.8 per cent indicated in the advance estimates.
"Additionally, we expect a bottoming out of the electronics export downcycle, likely in the second half of 2024, which will help mitigate downside risks to export growth.
"By extension, we expect the current account surplus to improve this year to 2.5 per cent of GDP.
"Admittedly, the risks to our 2024 GDP growth and current account surplus forecasts are skewed to the downside from persistently weak external demand conditions, geopolitical tensions and delays in the semiconductor recovery cycle," said OCBC senior Asean economist Lavanya Venkateswaran in a report.
On the monetary policy standpoint, she said the weakness in the Q4 GDP print is not sharp enough to convince Bank Negara Malaysia (BNM) for rate cuts.
"The bar for BNM to ease this year is high and we believe it will consider rate cuts only if there are persistent signs of weaker domestic demand conditions.
"On the flipside, we do not expect BNM to adjust rates higher in response to the government's impending adjustment to the fuel subsidy regime," she said, adding that BNM is poised to remain on hold through 2024.
On a sequential basis, the economy shrank 2.1 per cent quarter-on-quarter after growing 2.6 per cent in 3Q23.
She added that although it was clear that external demand remained a drag in Q4 2023, it was deep and persistent enough to offset the improvements in domestic demand.
Meanwhile, the domestic demand picture was resilient, led by public sector spending.
Public sector contribution to growth improved to 1.8 percentage point (pp) (3Q23: 1.0pp), as consumption and investment spending picked up in Q4 2023.
Private sector contribution, however, eased to 3.0pp versus 3.5pp in Q3 2023 as consumption and investment spending slowed.