(Bloomberg) -- Malaysia anticipates that growth will accelerate toward 5% this year, the top-end of its projection, as consumer spending and exports spurred the economy faster than initially thought in the second quarter.
Gross domestic product rose 5.9% in the April-June period from a year earlier, the central bank and statistics department reported on Friday. That compares with a preliminary reading of 5.8%. On a sequential basis, the economy expanded 2.9% from the previous three months.
The economy is set to expand at the higher end of the central bank’s forecast range of 4% to 5% this year, Bank Negara Malaysia Governor Abdul Rasheed Ghaffour said at a briefing in Kuala Lumpur on Friday.
It’s the second time this year the final print exceeded the advanced estimates, and points to a stronger-than-expected rebound for the Southeast Asian nation after growth slowed to 3.6% on tepid global demand in 2023. Foreign investments in the semiconductor industry and the AI-driven data center boom are helping fuel the expansion. Tourist spending in the first six months of the year has exceeded the same period in 2019, before the pandemic outbreak, spurring private consumption.
Economic expansion will be sustained in the second half of the year on higher exports, household spending and tourist arrivals, according to the central bank. In addition, further progress of multiyear projects will support investment growth, including data centers.
Stronger global demand for semiconductors is set to lift Malaysia’s electrical and electronics exports in 2024, according to the central bank.
Price pressures are set to grow in the second half of the year after the government allowed diesel prices to jump in June as it shifted toward targeted assistance, Abdul Rasheed said. The impact will be manageable though, he added.
Malaysia’s headline inflation is unlikely to exceed 3%, barring further shocks, the governor said, adding that officials are sticking with their projection for 2%-3.5% average price growth for the year. The central bank’s benchmark interest rate of 3% remains supportive of the economy, he said.
“The solid growth outlook and well contained inflation pressures, albeit trending higher in the second half of 2024, will allow Bank Negara Malaysia room to keep the policy rate unchanged for the rest of this year,” said Lavanya Venkateswaran an economist at Oversea-Chinese Banking Corp. in Singapore.
Consumer prices undershot estimates in June, even after the government removed blanket diesel subsidies that month. Officials have indicated they’re in no hurry to do the same with the country’s highly subsidized and most popular petrol called RON95.
Read: Malaysia Growth Could Give Anwar Space to Delay Subsidy Cuts
Risks still loom over the economy. Sluggish growth in China, Malaysia’s biggest trading partner, could weigh on the Southeast Asian nation’s growth. A fall in shipments to China contributed to Malaysia’s weaker-than-expected export growth in June.
For now, optimism surrounding Malaysia’s economy has boosted the ringgit. Analysts at Citigroup Inc. already raised in July their forecast for the nation’s growth to 5.2%. Others may follow suit as economists’ median projection for the year stands at 4.5%.
BNM will continue to work with the government to support the local currency, Abdul Rasheed said, as global geopolitical risks threaten to roil markets. Malaysia’s policymakers have this year encouraged state-linked firms, funds as well as companies in the private sector to repatriate their overseas income to help shore up the ringgit.
The currency is the best performer in emerging markets this year after rebounding from a 26-year low reached in February. Investors expect the US Federal Reserve to cut interest rates in September, easing the pressure on developing currencies.
“The support for the ringgit moving forward is positive,” Abdul Rasheed said. “It is moving toward the right direction in terms of being more reflective of our fundamentals and the strong prospects of the economy.”
--With assistance from Shinjini Datta, Joy Lee, Cecilia Yap and Marcus Wong.
(Adds comments by Oversea-Chinese Banking economist in ninth paragraph, central bank governor in last paragraph.)
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