Executive Summary
• Malaysia’s 3Q24 GDP growth held steady at +5.3% yoy (2Q24 at +5.9 yoy), and was in-line with advanced estimate of +5.3% yoy. Growth was driven by (i) strong expansion in overall investment activities, (ii) firmer exports and increase in tourism spending and (iii) resilient household spending.
• For 9M24, the economy expanded +5.2% (9M23 at +3.8% yoy), which largely on track to meet the Government projection of +4.8%-5.3% for 2024 tabled under Budget 2025 as well as our internal projection of +5.2% yoy.
• We expect Malaysia’s Real GDP growth to hold steady in the final quarter, bringing 2024 growth at +5.2% yoy vs. +3.6% yoy in 2023, backed by (i) stability of labour market conditions to be supportive towards domestic consumption, (ii) execution of multi-year projects from approved investments, (iii) stronger trade activities and (iv) implementation of new economic reformation policies such. Meanwhile, 2025 GDP growth is projected at +4.6% yoy (unchanged), pending further details on the shift in US trade policies and tariffs.
• Headline and core inflation is projected at +2.1% yoy and +2.0% yoy in 2024, in line with BNM’s projection of 2.0%-3.5% and 2.0%-3.0% respectively, impacted by the implementation of the diesel subsidy rationalisation and hike of the SST to 8.0%, while 2025F headline and core inflation is forecasted higher at +2.6% yoy and +2.4% yoy, in anticipation of the implementation of RON95 targeted subsidy rationalisation in 2H25.
• With expectations that BNM will maintain OPR at 3.0% towards end-2025, we raised our 2024 and 2025 year-end projection for USD/MYR is between 4.40-4.50 (previously at 4.20-4.30) and 4.30-4.40 (previously at 4.10-4.20) respectively, to account for the intensified trade conflict and a more gradual interest rate cut approach from the US Federal Reserve (three cuts in 2025).
Summary
With expected total revenue next year at RM340.0bn, Budget 2025 aims to narrow the country’s fiscal deficit from estimated 4.3% in 2024 to 3.8% of gross domestic product (GDP) in 2025 in bid to achieve the government’s long term fiscal consolidation target.
Given that the re-introduction of GST was put off the table, the (i) broadening of tax base under SST regime to include non-essential goods, (ii) proposed 2% dividend tax on dividend income of RM100,000 and above, (iii) implementation of GMT in 2025, (iv) carbon tax on iron, steel and energy industries by 2026, (v) hike in sugar-sweetened beverages tax by 40 sen/litre, (iv) full implementation of e-invoicing by 1 Jul 2025 along with the removal of blanket subsidies for RON95 in mid-2025 will be supportive towards fiscal consolidation target.
Once again, the education sector occupies a lion share at RM82.1bn, representing 19.5% of the total Budget allocation highlights the Government commitment towards improving education access and quality, particularly for disadvantaged communities, while the healthcare sector was allocated RM45.3bn, representing 10.8% over the total budget allocation underscores the government focus towards delivery of greater healthcare services.
Despite allocation towards development expenditure allocation remain unchanged at RM86.0bn vis-à-vis revised Budget 2024, the construction sector will be kept busy by several on-going key mega infrastructure projects alongside with the influx of DC-related projects in recent times.
Overall, we opine that Budget 2025 as largely Neutral as it moves to mitigate some of the high cost of living through greater cash aids and broadening individual tax reliefs that will invariably translate to stronger domestic spending, going forward.
We are in view that Budget 2025 beneficiaries include consumer, tourism-related, healthcare, gloves, property and technology sectors (see more below).
We maintain our 2024F and 2025F year-end target for FBM KLCI at 1,680 and 1,750 respectively, based on assigned 15.5x PERs.
Summary
Malaysia’s GDP growth accelerated to +5.9% yoy in 2Q24 (1Q24 at +4.2 yoy), and came above advanced estimate of +5.8% yoy. For 1H24, the economy expanded +5.1% (1H23 at +4.1% yoy), which largely on track to meet the Government projection of +4.0%-5.0% for 2024 and surpassed our initial forecast of +4.1% yoy for end-2024.
We expect Malaysia’s Real GDP growth to remain steadfast in 2H24 to end at +5.2% in 2024 vs. 3.6% in 2023, supported by (i) stronger domestic spending, (ii) stability and gradual improving labour market conditions, (iii) progressive income growth, (iv) execution of multi-year projects from approved investments, (v) resumption of global technology upcycle and (vi) recovery in tourism spending. End 2025 target kept unchanged at +4.6% yoy.
Headline and core inflation is projected to inch higher to +2.6% yoy and +2.5% yoy in 2024, which is in line with BNM’s projection of 2.0%-3.5% and 2.0%-3.0% respectively, impacted by the implementation of the diesel subsidy rationalisation and hike of the SST to 8.0%.
With expectations that BNM will maintain OPR at 3.0%, our 2024 year-end projection for USD/MYR is between 4.20-4.30, supported by the prospects of US interest rate cut(s) and steady economic improvements from structural reforms on the domestic front.
| Currency | Buy Rates (RM) | Sell Rates (RM) |
|---|---|---|
| USD | 4.458845 | 4.487623 |
| EUR | 4.717065 | 4.720507 |
| CNY | 0.617446 | 0.617812 |
| HKD | 0.572903 | 0.576627 |
| SGD | 3.325746 | 3.347480 |
