Malaysia's year-on-year GDP growth rate in the first quarter of 2024 was the lowest for the same period since the end of the COVID-19 lockdowns

Malaysia's economy witnessed a 4.2% GDP Growth Rate YOY in the first quarter of 2024, the lowest record of the same period during the period after the COVID-19 lockdowns ended.

According to the latest data published on May 17th, 2024, by the Department of Statistics Malaysia (DOSM), Malaysia’s GDP in the first quarter of 2024 saw a year-on-year increase of 4.2%, reaching a value of approximately RM397.4 billion. In the first quarter of 2024, Malaysia’s economy recorded a 4.2% GDP growth year-on-year, the lowest since the COVID-19 lockdowns ended, though it surpassed the DOSM’s April estimate and a recent Reuters poll forecast of 3.9%.

Graph showing Malaysia GDP Growth Rates per Quarter (Q1 2019 to Q1 2024)

DOSM Chief Statistician Mohd Uzir Mahidin attributed the economic expansion to increased household spending, a rebound in goods exports, higher tourist arrivals, and stronger investment activities. Bank Negara Malaysia Governor Abdul Rasheed Ghaffour noted that most economic sectors saw higher growth, primarily driven by the manufacturing sector’s recovery and continued services sector growth.

The breakdown revealed that all main sectors experienced growth in Q1 2024 compared to the same period last year:

  • Construction: The construction sector exhibited remarkable growth, increasing by 11.9% YOY in Q1 2024, much higher than the previous quarter (3.6% in the fourth quarter of 2023) and the Q1 2023 (7.4%). This strong growth was attributed to listed contractors being awarded domestic contracts with a total value of RM6.96 billion in the first quarter of this year (Q124), a 45% increase compared to the previous quarter.
  • Mining & Quarrying: raised 5.7% YOY, driven by higher natural gas production. It was an impressive growth compared to 3.5% in the previous quarter and 1.6% in the first quarter of 2023.
  • Services: The services sector, pivotal to Malaysia’s economy, expanded by 4.7% YOY, driven by higher retail trade activities and sustained growth in the transport and storage subsectors.
  • Manufacturing: The manufacturing sector saw a 1.9% YOY increase in Q1 2024, rebounding from a 0.3% contraction in Q4 2023. This recovery was fueled by strong performance in both the electrical and electronic (E&E) industries and non-E&E industries.
  • Agriculture: The agricultural sector grew by 1.6% YOY, supported by increased oil palm and livestock production.
Graph showing Malaysia’s Main Economic Sectors Growth Rates Comparison Between Q1 – 2023 and Q1 – 2024

Growth in household spending was supported by ongoing employment and wage increases, while investment activities improved due to higher capital expenditures from both private and public sectors.

Headline inflation remained moderate at 1.7% during the quarter (4Q 2023: 1.6%). The modest increase in headline inflation reflects the policy adjustments to water tariffs in February and services tax for high-usage electricity in March, which increased by 20.8% (4Q 2023: 2.1%) and 0.7% (4Q 2023: 0%) respectively. Core inflation moderated to 1.8% (4Q 2023: 2%), driven by continued easing in the food and beverages segment.

Looking ahead, inflation is expected to remain moderate in 2024, reflecting stable demand conditions and contained cost pressures. However, the outcome will be influenced by domestic policy decisions regarding subsidies and price controls, as well as global commodity prices and financial market developments. Mounting geopolitical tensions and the Red Sea security crisis could disrupt commodity supply chains, raise shipping costs, and intensify commodity price volatility, exacerbating lingering cost pressures for consumers and businesses. Headline inflation is estimated to be between 2.0% and 3.5%, while core inflation is projected to fall between 2.0% and 3.0% for the year.

On May 9, 2024, the Monetary Policy Committee (MPC) of Bank Negara Malaysia decided to maintain the Overnight Policy Rate (OPR) at 3.00%. This decision aligns with the current assessment of inflation and growth prospects, aiming to support economic growth while maintaining price stability. However, Mohd Afzanizam Abdul Rashid, chief economist at Bank Muamalat Malaysia, noted that a potential increase in the OPR could not be entirely ruled out, depending on future economic developments.

The MPC emphasized that the current OPR level remains conducive to sustainable economic growth amid stable prices, although future increases may be considered based on economic conditions.

While Malaysia’s economic growth in Q1 2024 is encouraging, some analysts caution that the momentum may not be sustained. Shivaan Tandon of Capital Economics pointed out that the softening labor market, tighter fiscal policies, and weak foreign demand could weigh on economic activity in the coming quarters. These factors may pose challenges to maintaining the current growth trajectory.

In summary, while Malaysia’s economy demonstrated strong Q1 2024 performance due to robust household spending and key sector growth, sustaining this growth will necessitate vigilant monitoring of inflation, labor market conditions, and global economic trends, along with strategic government policies.

Malaysia Records Highest Ever Q1 Trade Values, with Trade Growing 7.1% Year-on-Year and a Surplus of RM34.22 billion

Malaysia’s Q1 2024 trade performance continued its upward trajectory, recording 7.1% growth to RM690.59 billion year-on-year (y-o-y), with a trade surplus of RM34.22 billion.

In Q1 2024, Malaysia’s exports increased by 2.2% YOY to RM362.41 billion, driven by higher exports of manufactured and mining goods. However, exports saw a slight decline of 1.1% compared to the previous quarter (Q4 2023). Notable increases were observed in exports of iron and steel products, machinery, equipment, and parts, manufactures of metal, crude petroleum, and liquefied natural gas (LNG). Market growth was supported by increased exports to ASEAN, the United States, and Japan.

Graph showing Malaysia’s Major Export Markets in the First Quarter of 2024

Imports in Q1 2024 saw a significant year-on-year growth of 13.1% to RM328.19 billion, despite a slight 0.3% decline from the previous quarter, driven by strong imports of capital and intermediate goods. Its sizeable trade surplus as of Q1 will help the country sustain its current account surplus, thereby bolstering liquidity within the economy.

Graph showing Malaysia’s Major Import Sources in the First Quarter of 2024

Malaysia experienced positive trade growth with Free Trade Agreement (FTA) partners in Q1 2024, rising by 4.4% to RM456.02 billion, which represents 65.3% of total trade. Exports to FTA partners edged up by 0.3% to RM248.17 billion, while imports increased by 9.6% to RM207.85 billion YOY.

About the detailed trade growth in the first quarter of 2024 with main trade partners of Malaysia:

  • ASEAN: Trade with ASEAN increased by 5.4% YOY to RM185.67 billion. Exports to the region grew by 1.1% to RM106.92 billion, driven by solid exports of petroleum products, machinery, equipment, and parts. Imports from ASEAN rose by 11.8% to RM78.75 billion.
  • China: Trade with China grew by 3.3% YOY to RM112.28 billion. Exports to China declined by 3.3% to RM44.5 billion, primarily due to lower exports of electrical and electronic (E&E) products. However, there were robust exports of paper and pulp products, manufactures of metal, and petroleum products. Imports from China increased by 8.2% to RM67.78 billion.
  • United States: Trade with the US rose by 12.2% YOY to RM66.92 billion. Export growth of 8% to RM42.07 billion was driven by strong demand for semiconductor devices, integrated circuits (ICs), and parts and accessories for office machines. Also, there were increases in exports of machinery, equipment, and parts, and iron and steel products. Imports from the US expanded by 20.2% to RM24.85 billion.
  • European Union: Trade with the EU grew by 0.5% YOY to RM52.32 billion. Exports decreased by 2.4% YOY to RM28.58 billion, due to reduced exports of petroleum products and manufactures of metal. Despite this decline, there were strong exports of E&E products, palm oil-based manufactured products, and processed foods. Imports from the EU rose by 4.2% to RM23.74 billion.
  • Japan: Trade with Japan fell by 1.1% YOY to RM41.83 billion. Exports increased by 0.8% to RM23.85 billion, driven by higher exports of crude petroleum, processed food, and optical and scientific equipment. Imports from Japan decreased by 3.5% to RM17.99 billion.

In summary, Malaysia’s Q1 2024 trade performance was marked by record highs in trade, export, and import values, with significant contributions from major trade partners and a robust increase in both exports and imports.

Malaysia Focuses on Diversifying Trade with Non-Traditional Trading Partners

Cargo port

In the face of escalating geopolitical challenges and increasing global trade tensions, Malaysia is strategically focusing on diversifying its trade relationships beyond traditional partners, targeting regions such as Africa, South America, and West Asia. This initiative is seen as essential to mitigating risks and seizing new growth opportunities in the global market.

The world since 2023 has witnessed escalating geopolitical challenges and increasing global trade tensions. Heightened tensions between major powers, particularly between the United States and China, involving disputes over trade, technology, and regional influence. Russia’s ongoing conflict with Ukraine, Russia – NATO conflict, and an ongoing military and political conflict between Israel and Palestine have further strained international relations, leading to significant economic sanctions and global energy disruptions.

In the face of those tensions, Datuk Seri Tengku Zafrul Abdul Aziz, Malaysia’s Investment, Trade, and Industry Minister emphasized the importance of this diversification strategy. He noted that while China and the United States remain Malaysia’s largest trading partners, global trade with major economies has been declining. In contrast, trade with countries in West Asia, Africa, and South America has been on the rise.

“That’s part of our diversifying policy in trade. We need to focus on non-traditional markets because that is where the growth will be. We have to plan now for the future,” Tengku Zafrul stated during a press conference at the Silk Road Samarkand Complex.

Astana, Kazakhstan

Central Asia is also a key focus area. Recent official visits by Prime Minister Datuk Seri Anwar Ibrahim and Tengku Zafrul to Uzbekistan, Kyrgyzstan, and Kazakhstan underscore Malaysia’s commitment to strengthening trade relations with these rapidly developing nations. Although these Central Asian economies are smaller compared to Malaysia, their GDP growth rates are notable.

In 2023, Malaysia-Kyrgyzstan trade volume reached RM162.3 million (US$36.35 million), marking a 312.6% increase from 2022, with Malaysian exports amounting to RM161.1 million (US$36.09 million). Malaysia’s total trade with Kazakhstan in 2023 was RM474.5 million (US$104.2 million), with exports totaling RM465.6 million (US$102.2 million) and imports from Kazakhstan at RM8.9 million (US$1.9 million). Meanwhile, trade with Uzbekistan reached RM451.1 million (US$94.03 million), with Malaysian exports at RM449 million (US$93.6 million) and imports at RM1.99 million (US$414,518).

Tengku Zafrul highlighted that the economic dynamics of these Central Asian countries’ present unique investment opportunities. Given Malaysia’s larger GDP, these nations are keen for Malaysian investments. This investment cooperation is seen as mutually beneficial, providing Malaysia with access to emerging markets while contributing to the economic development of Central Asia.

In summary, Malaysia’s proactive approach to diversifying its trade portfolio aims to establish robust economic ties with non-traditional partners, particularly in Africa, South America, and West Asia. This strategy not only addresses the current geopolitical and trade challenges but also positions Malaysia for sustainable future growth in a rapidly evolving global trade landscape.

Malaysia Benefits from China-US Trade Tension: Foreign Semiconductor and Electric Vehicle Companies Relocate to Southeast Asia

Amid escalating trade tensions between the U.S. and China, Malaysia has emerged as a pivotal hub for semiconductor and electric vehicle (EV) manufacturing.

Companies are increasingly relocating from China to Southeast Asia, with Malaysia reaping substantial benefits due to its strategic position and well-established infrastructure.

Malaysia’s semiconductor sector, particularly in assembly, testing, and packaging, has a rich history dating back 50 years when Intel established its first international manufacturing plant in Penang. This legacy has positioned Malaysia as the sixth-largest exporter of semiconductors globally. Intel continues to invest heavily, with a recent commitment of over $7 billion for a new chip packaging and testing factory in Penang, slated to begin production in 2024.

GlobalFoundries, another major U.S. chip manufacturer, opened a hub in Penang to support its global manufacturing operations. Similarly, Infineon, Germany’s top chipmaker, will build its third wafer fabrication module in Kulim, Kedah, and Neways, a supplier to Dutch chip equipment maker ASML, committed to building a new production facility in Klang.

Semiconductor manufacturing process

Malaysia’s appeal lies in its skilled labor force, lower operating costs, and robust supply chain infrastructure. According to the Malaysian Investment Development Authority, Malaysia holds a 13% share of the global market for chip packaging, assembly, and testing services. Exports of semiconductor devices and integrated circuits slightly increased to RM387.45 billion ($81.4 billion) in 2023 despite global chip demand weaknesses.

However, Malaysia faces challenges as it aims to move up the value chain. The competition from neighboring countries like Indonesia and Vietnam is fierce, and merely offering tax incentives is insufficient. Additionally, constraints in local supply chains and a shortage of skilled labor are significant hurdles. Former Deputy Minister of International Trade and Industry Ong Kian Ming highlighted that many foreign companies struggle to integrate with local supply chains, limiting the benefits to Malaysian SMEs.

To address these challenges and attract further high-tech investments, Malaysian Prime Minister Anwar Ibrahim has actively courted foreign investors. During a keynote address at SME Future Day 2024 in Berlin, Anwar invited German and European firms to invest in Malaysia, emphasizing the country’s strategic importance for accessing the Chinese market.

The Malaysian government is also focusing on building a national semiconductor strategic task force to enhance the semiconductor ecosystem. Investment, Trade, and Industry Minister Tengku Zafrul Abdul Aziz announced plans to institutionalize local company participation and update laws and incentive packages to remain competitive.

This move has the potential to elevate Malaysia’s position in the global semiconductor supply chain, attracting significant foreign direct investment (FDI) from global tech giants seeking reliable and diverse manufacturing partners while fostering local innovation and research capabilities. These higher value-added processes promise higher profit margins and substantial economic contributions, enhancing the sector’s overall economic impact. Additionally, this move would necessitate the development of a highly skilled workforce, prompting advancements in education and training programs focused on cutting-edge semiconductor technologies.

Despite the opportunities, Malaysia faces a brain drain challenge as skilled workers migrate to other regions for better prospects. An official study revealed that three out of four Malaysian workers in Singapore are skilled or semi-skilled, underscoring the need for strategies to retain talent.

As Malaysia continues to attract semiconductor firms and navigate the complexities of global supply chain diversification, its role in the global tech ecosystem is set to grow. The country’s strategic initiatives and investments are crucial to sustaining this growth and ensuring that the benefits of foreign direct investments are fully realized locally.

About this report

This report was compiled with contributions from the team of business experts in our Malaysia office.

ARC Consulting, a division of ARC Group, is an advisory firm specialised in supporting western companies operating in Asia. Our mission is to bridge between the business ecosystems of Asia and those in Europe and the US. Our services cover market entry and expansion, production and sourcing, cross-border M&A as well as ESG and operational improvement and compliance.

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    Malaysia’s Gross Domestic Product (GDP) Growth Rate YOY In the First Quarter of 2024 Witnessed the Lowest Record of The Same Period Since The COVID-19 Lockdowns Ended

    Malaysia Recorded the Highest Historical First Quarter (Q1) Trade Values With The Trade Growing 7.1% Year-on-Year, Resulting In A Trade Surplus of RM34.22 Billion

    Malaysia Focuses on Diversifying Trade With Non-Traditional Trading Partners

    Malaysia Benefits from China-US Trade Tension: Foreign Semi-conductor and Electric Vehicle Companies Relocating to Southeast Asia