KUALA LUMPUR, May 20 — Maybank Investment Bank (Maybank IB) has raised its 2024 and 2025 real gross domestic product (GDP) forecasts to 4.7 per cent from 4.4 previously, and 5.1 per cent versus 5.0, respectively, as a result of the better-than-expected first-quarter growth (Q1 2024).

Malaysia’s economy expanded at a higher rate of 4.2 per cent in the quarter under review from 2.9 per cent in Q4 2023, driven by stronger private expenditure and a positive turnaround in exports.

The investment bank also raised growth forecasts for public consumption to 5.2 per cent from 4.1 for 2024 (2025: 4.9 per cent from 4.1), private consumption at 5.1 per cent this year and 5.7 next year versus an earlier forecast of 5.5 per cent for 2025.

The upward revision primarily reflects the impact of the recently announced 13 per cent (around RM10 billion) civil service salary increase effective December 2024, it said in a research note today.


Meanwhile, Kenanga Investment Bank (Kenanga IB) said the 2024 GDP growth forecast remains at 4.5 to 5 per cent, driven by solid domestic demand and sustained expansion in manufacturing and services sectors.

“Outlook is supported by strong growth in the services sector, driven by resilient domestic demand.”

EPF Account 3 effect, could trigger inflation


Besides the salary increment for civil servants, Kenanga IB said the introduction of EPF’s Account 3, which permits flexible withdrawals, will be a contributing factor to boost domestic demand.

There is also the cash transfer initiative known as Sumbangan Tunai Rahmah (STR).

While acknowledging the positive impact of Account 3 on domestic demand, Maybank IB said depending on the outcome, there is also a downside to this initiative.

“We have not priced this into our real GDP growth forecast — especially the private consumption component — pending clarity on the ‘behaviour’ of EPF members in utilising Account 3. For example, will it be all for consumer spending or will it include other purposes like paying household debts and being kept as emergency savings,” said the Maybank IB.

In the event of a consumer spending surge, this could trigger additional inflation risk upside (Q1 2024: 1.7 per cent year-on-year, 2024 forecast 2.4 per cent and 2025 at 3 per cent) via demand-pull inflation.

This is in addition to the expected cost-push inflation due to the targeted fuel subsidy rationalisation to be implemented this year, pending timing, quantum and mechanics details, it said.

This, in turn, could lead to upside risk in Bank Negara Malaysia’s (BNM) overnight policy rate (OPR) outlook, which is expected to remain stable at the current 3 per cent level until end-2025.

Kenanga IB, nonetheless, believes the current monetary policy will remain unchanged for the rest of the year as it is deemed appropriate to control inflation and support domestic growth.

“The headline inflation outlook shows a modest expansion due to expected gradual subsidy rationalisation in the second half of 2024.

“This may increase price pressures, but the impact should be manageable, with potential supply shocks offset by reduced demand amid higher prices,” it said.

Furthermore, a rise in tourist arrivals and a healthy labour market — unemployment rate projected to improve to 3.2 per cent (2023: 3.4 per cent) — would significantly support the growth trajectory.

Higher investment realisation following higher approved investment last year, progress of new and ongoing projects like the Johor Baru-Singapore Rapid Transit System construction, the Pan-Borneo highway, the East Coast Rail Link network, and policies under the Madani Economy framework will further drive a more robust economic growth, said Kenanga IB.

Geopolitical risk remains

Both Maybank IB and Kenanga IB were on the same page regarding geopolitical risk.

“Geopolitical risk would dominate the macro narrative and potentially disrupt the growth momentum. Weaker-than-expected global trade and elevated US-China trade tensions, especially following the recent tariff hike announcement, could impede global economic growth,” said Kenanga IB.

This situation is exacerbated by the ongoing Ukraine and Israel-Gaza conflicts, negatively affecting logistics and overall global trade activities.

Meanwhile, the prevailing tight monetary policy adopted by most of the advanced economies poses downside risks to Malaysia, given the potential risk of a global economic downturn, it said.

“While US-China ‘trade war and the tit-for-tat tariff hikes’ since President Trump days have benefitted Malaysia in terms of trade diversions and foreign direct investment. relocation/re-shoring for supply chain resilience and security, the risk of escalation in US-China trade tension is rising with the November 2024 US presidential election.

“We are also mindful of the US probe on solar cells and panels imported from Asean — Malaysia, Thailand, Vietnam, Cambodia — on allegations of unfair trade practices, that is, priced below production costs on heavy subsidies.”

This underscores the risk of the US casting its import tariff hikes wider, it added. — Bernama