ICAEW Malaysia Economic Insight 2024 and 2025 Outlook Part 14

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ICAEW Economic Insight Report Q4 2024 • 10 December 2024, KL City Center (KLCC) • Malaysia: Electronics to drive the economy • • Economic activity remained robust in Q3, with GDP growing by 5.3% y/y. • • The electronics cycle has been the key tailwind, but the boost is set to moderate in 2025. • • Inflationary risks and currency pressure suggest the policy rate will buck the easing cycle. • An Economic Insight Report by the Institute of Chartered Accountants in England and Wales (ICAEW) analyzed the current trends and challenges facing Malaysia’s economy. While the country is navigating distinct dynamics in the face of global uncertainties and domestic pressures, the economy remains resilient, bolstered by the electronics sector, though concerns about inflation and weaker domestic consumption linger. • As Malaysia moves toward 2025, economic momentum continues to be elevated despite some slowdown in Q3. The annual pace of growth moderated to 5.3% y/y in Q3 from Q2’s 5.8%. The main tailwind has been the ongoing upturn in the electronics cycle, which boosted investment growth from the private sector as well as export growth. • Head of Regional Equity Research at Maybank Investment Bank, Anand Pathmakanthan projected Malaysia’s GDP at 5.2% in 2024 and 4.9% in 2025, reflecting a robust recovery post-pandemic driven by investments, and a supportive policy environment under the 2025 budget, outpacing the ASEAN-6 regional average of 4.8% in 2024 and 4.7% in 2025. • The robust investment growth seen in Q3 – a strong 15.3% y/y – possibly reflects still-elevated optimism among private businesses, particularly foreign ones. For 2024, investment is set to grow by about 12%. According to ICAEW member and Chairman of Bursa Malaysia, Tan Sri Dato’ Sri Abdul Wahid Omar, it has been a good year for Malaysia, the most vibrant market for IPOs in ASEAN which saw RM 2 trillion in market capitalization and the IPO pipeline for 2025 also looks very encouraging. • Approved private sector investments totaled approximately RM 220 billion in 2024, with both foreign and domestic investments contributing significantly. The last time investment data was at least this strong was in 2012. • While government projects and residential developments remain in the pipeline, plans by major chip firms to expand or set up shop in Malaysia form the bulk of investment. With Malaysia’s heavy reliance on electrical and electronics exports, trade uncertainties could rise from disrupted supply chains and constrained export diversification. • Over time, however, the global fragmentation and the U.S. China trade rivalry may shift investment flows, sustaining export gains for Malaysia, and increasing its share in ASEAN exports to the U.S. as China’s dominance wanes according to Datuk Wan Razly Abdullah, ICAEW member and Group Chief Executive of Affin Bank. • The cross-border Johor-Singapore Special Economic Zone (SEZ) will aim to integrate Johor and Singapore economically. With factory rents 65% lower, office rents 75% cheaper, and housing costs 85% less in Johor compared to Singapore, the SEZ is attracting significant interest. Though the deal signing has been delayed to January 2025, it is anticipated to accelerate economic collaboration and reduce operational costs for businesses. • Scheduled to be operational by the end of 2026, a Malaysia-Singapore Rapid Transit System is 70% complete and will significantly enhance cross-border mobility for workers and tourists, supporting economic integration. According to ICAEW member and Deputy Assurance Leader at EY Malaysia, Dato’ Megat Iskandar Shah, collaborations with Singapore in renewable energy, tourism, and economic zones will reinforce Malaysia’s integration within ASEAN while enhancing its global trade connectivity. • After a stellar H1, consumer spending appears to have come off the boil in Q3, expanding by 4.8% y/y from last quarter’s 6% y/y. With most of the tourism recovery already over, the boost seen earlier in the year is likely to fade. Fiscal tightening will remain a drag on consumption decisions. The much-anticipated withdrawal of subsidies from petroleum may fuel inflation and constrain discretionary spending too. • However, there are signs that consumer purchasing power is improving. Job market indicators point to some labour market tightening. Earnings growth has turned positive and unemployment remains low. The usual lags suggest expansion plans by major semiconductor related companies will start to prop up real incomes from the turn of the year. Private consumption growth should only be mildly better in 2025. • Continues on Part 2/4 • #bursamalaysia #icaew #maybankinvestmentbank #earnestyoung #AffinMY #AFFIN #EY #ernstandyoung #KPMG #kpmgmalaysia #PwC

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