Malaysia is expected to benefit from the electronics recovery in the second half of the year (2H24), given its position further down the electronics value chain, said Oxford Economics.
In a research commissioned by the Institute of Chartered Accountants in England and Wales (ICAEW), it said the electronics sector is a bright spot for Southeast Asia’s economy, with the region projected to grow by 4.0 per cent in 2024 and 2025.
“However, this is below the pre-pandemic average of 5 per cent in the five years prior, largely due to expected challenges in domestic consumption as interest rates remain higher for longer,” it added.
Oxford Economics said the recovery in global semiconductor sales, which saw a 15.3 per cent year-on-year (YoY) increase in the first quarter of 2024 (1Q24), has particularly benefited Vietnam, where export growth soared to an estimated 16.8 per cent YoY.
“On a seasonally adjusted basis, Singapore also saw a rebound in non-oil domestic exports in April with an estimated 9.4 per cent month-on-month (MoM) growth, marking a positive turn after two consecutive months of decline,” it said.
“Nevertheless, the boost from the electronics sector in Southeast Asia remains softer compared to other Asian semiconductor heavyweights like Taiwan and South Korea,” it noted.
Malaysia reported GDP growth of 4.2 per cent for the first quarter of 2024.
At the same time, the report said the Malaysian ringgit faced notable difficulties in the first quarter of 2024 (1Q24), primarily due to the significant gap between Bank Negara Malaysia’s (BNM) policy rate and the US Federal Funds rate.
Despite inflation staying below 2 per cent over the past six months with no strong signs of increase, currency depreciation poses a challenge for BNM in terms of implementing policy measures to bolster the economy.
“This challenge persists until the US Federal Reserve initiates rate cuts, anticipated to occur in the third quarter (Q3), alleviating pressure on the ringgit and potentially enabling policy rate adjustments,” it said.
“While Malaysia’s first quarter (1Q24) gross domestic product (GDP) growth showcased resilience, primarily supported by robust electronics exports, the economic outlook remains cautious due to challenges in both domestic consumption and external demand,” it said.
The report predicts moderate growth for the Malaysian economy in 2024 despite ongoing uncertainties in global economic conditions and domestic policy responses.
“BNM maintains optimism due to potential benefits from increased tech sector activity, stronger tourism, and accelerated progress in current and upcoming investment ventures,” it added.
According to Oxford Economics, the continued depreciation of local currencies against the US dollar is expected to constrain the ability of Southeast Asian central banks to implement monetary easing measures.
“The strong US dollar, driven by the Federal Reserve’s high interest rates, prevents local central banks from cutting rates without risking further currency depreciation,” it said.
The report highlighted a ray of optimism, suggesting that anticipated rate cuts by the US Federal Reserve in the third quarter of 2024 (3Q24) could relieve pressure on regional currencies.
“This might enable Southeast Asian central banks to consider easing their monetary policies,” it added.
Source: nst.com.my
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