Malaysia Economic Update Report, Q4 2024

Malaysia’s Economy Expands 5.0% in Q4 2024, Driven by Domestic Demand and Investment Growth

Malaysia’s GDP grew by 5.0% YoY in Q4 2024, surpassing forecasts but moderating from Q3’s 5.4% growth, with strong services and construction sector performance offset by contractions in agriculture and mining.

The Department of Statistics Malaysia (DOSM) has released the official gross domestic product (GDP) data for the fourth quarter of 2024, revealing a 5.0% year-on-year (YoY) expansion, bringing the country’s GDP at constant prices to RM430.7 billion. This growth rate outperformed both the official advance estimate and analysts’ consensus forecast of 4.8% from a Reuters poll but was softer than the 5.4% growth recorded in Q3 2024. On a seasonally adjusted basis, the economy contracted by 1.1%, compared to a 1.9% increase in the previous quarter.

For the entire year of 2024, Malaysia’s economy grew by 5.1%, up from 3.6% in , with total GDP reaching RM1.65 trillion at constant prices. This expansion fell within the government’s projected range of 4.8% to 5.3% and was supported by sustained domestic demand. Meanwhile, gross national income per capita increased by 3.6% to RM54,894, reversing the slight 0.2% decline recorded in 2023.

According to Bank Negara Malaysia (BNM), the 5.0% GDP growth in Q4 was primarily driven by robust domestic demand, strong investment activity, and resilient household spending. The services, manufacturing, and construction sectors remained the key contributors to growth on the supply side, while on the demand side, private final consumption expenditure and gross fixed capital formation were the main catalysts.

However, the agriculture and mining & quarrying sectors contracted, weighing on overall economic performance. Nevertheless, the strong inflow of investments into key industries, easing inflationary pressures, and an improving labor market—marked by near-decade-low unemployment rates—bolstered domestic demand and reinforced Malaysia’s growth trajectory.

• Services Sector: This sector expanded by 5.5% YoY in Q4 2024 (Q3: 5.2%), with growth driven by Wholesale & Retail Trade (+4.4%), Transportation & Storage (+10.7%), and Finance & Insurance (+5.3%). However, on a seasonally adjusted basis, the sector contracted by 0.8% (Q3: +1.7%). For the full year, the Services sector grew by 5.4%, up from 5.1% in 2023.
• Manufacturing Sector: The growth slowed to 4.4% YoY in Q4 2024 (Q3: 5.6%) and declined 2.8% seasonally adjusted (Q3: +2.0%). The sector was supported by a stronger performance in Electrical & Electronics (+7.3%) but saw weaker growth in Petroleum, Chemical, Rubber & Plastic Products (+3.2%, down from Q3: 4.4%). Meanwhile, Transport Equipment & Other Manufacturing contracted 3.2%, mainly due to a decline in motor vehicle and transport equipment production. For the full year, the sector expanded by 4.2%, significantly higher than 0.7% in 2023.
• Mining & Quarrying Sector: Contracted by 0.9% YoY (Q3: -3.9%) but rebounded 5.9% seasonally adjusted (Q3: -1.1%). The decline was attributed to a continued slump in Crude Oil & Condensate (-6.2%, Q3: -7.3%), while Natural Gas showed signs of recovery (+2.4%, Q3: -2.8%). Other Mining & Quarrying & Supporting Services grew modestly by 0.4% (Q3: 2.6%). Full-year growth stood at 0.9%, slightly up from 0.5% in 2023.
• Agriculture Sector: Declined by 0.5% YoY (Q3: +4.0%) and contracted 1.8% seasonally adjusted (Q3: +0.5%). The downturn was primarily due to a slowdown in Oil Palm Production (-5.3%, Q3: +7.3%), reflecting weaker fresh fruit bunch yields. The Forestry & Logging sub-sector also declined (-0.9%, Q3: +2.9%). However, Livestock (+3.0%, Q3: +2.7%) and Rubber (+23.3%, Q3: +13.9%) recorded growth. For 2024, the sector grew by 3.1%, up from 0.7% in 2023.
• Construction Sector: Continued its rapid expansion, growing 20.7% YoY (Q3: 19.9%) but contracting 2.3% seasonally adjusted (Q3: +5.7%). Growth was supported by Non-Residential Buildings (+23.9%, Q3: +28.1%), Residential Buildings (+30.3%, Q3: +22.7%), and Specialized Construction Activities (+23.6%, Q3: +21.7%). Civil Engineering also contributed but at a slower pace (+9.1%, down from Q3: +10.7%). Full-year growth surged to 17.5%, nearly three times the 6.1% growth recorded in 2023.

About inflation, Malaysia’s headline inflation edged lower to 1.8% in Q4 2024 (Q3: 1.9%), reflecting lower prices for mobile communication services and RON97 petrol, though partially offset by rising costs in fresh vegetables, fish, and seafood. Core inflation also moderated to 1.7% (Q3: 1.9%), mainly due to a 10.0% decline in mobile communication service prices (Q3: 0.0%). Inflation pervasiveness remained moderate, with the share of Consumer Price Index (CPI) items recording monthly price increases staying below the long-term average of 39.8% (Q3: 38.9%; Q4 2011-2019: 41.7%). For the full year, both headline and core inflation eased to 1.8%, compared to 2.5% and 3.0% in 2023, respectively.

The ringgit appreciated against most major currencies throughout 2024, particularly strengthening against the Singapore dollar, Korean won, and Japanese yen. The Nominal Effective Exchange Rate (NEER) for 2024 showed an overall appreciation of 7.5%, indicating a stronger ringgit relative to Malaysia’s key trading partners. However, in Q4 2024, the ringgit depreciated by 8.1% against the US dollar and weakened 3.4% in the NEER index. This decline was in line with broader regional currency trends, driven by a stronger US dollar amid revised expectations for smaller US policy rate cuts in 2025 and higher investor risk aversion due to policy uncertainties under the new US administration.

Credit to the private non-financial sector expanded by 5.2% in Q4 2024 (Q3: 4.8%), driven by higher growth in outstanding business loans and corporate bonds, particularly for investment-related purposes. Growth in working capital loans remained steady, while the manufacturing and construction sectors recorded stronger financing activity. Meanwhile, household loans expanded by 5.9% (Q3: 6.1%), showing a slight moderation due to slower growth in housing and vehicle loans. Despite this, loan applications and

disbursements remained stable, reflecting sustained demand for credit during the quarter.

Malaysia and the EU Resume Free Trade Agreement Negotiations After 12 Years

After a 12-year hiatus, Malaysia and the European Union (EU) have officially resumed negotiations for the Malaysia-EU Free Trade Agreement (MEUFTA).

The announcement was made on January 20, 2025, during Malaysian Prime Minister Anwar Ibrahim’s working visit to Brussels, where he met with European Commission President Ursula von der Leyen. This marks a renewed commitment by both sides to finalize a trade deal that has remained stalled for over a decade.

MEUFTA negotiations originally began in 2010, with the goal of fostering closer economic ties between Malaysia and the EU. However, talks stalled in 2012 due to disagreements over market access, regulatory alignment, and environmental policies. One of the major sticking points was the EU’s strict environmental regulations, particularly those affecting Malaysia’s palm oil exports—a critical sector for the country’s economy.

The EU’s push for sustainable trade practices and its deforestation regulations clashed with Malaysia’s agricultural trade policies, leading to a deadlock in negotiations. Other contentious areas included non-tariff barriers, intellectual property rights, and public procurement policies.

However, a stocktaking exercise in 2023 allowed both parties to reassess their priorities and revive interest in the FTA. As global trade dynamics shift, both Malaysia and the EU recognize the strategic importance of finalizing a deal that could enhance their economic resilience amid geopolitical uncertainties. This exercise allowed Malaysia and the EU to address previous concerns and re-evaluate economic opportunities amid shifting global trade dynamics.

In 2023, the EU remained Malaysia’s fourth-largest trading partner, with bilateral trade in goods amounting to €45 billion, while services trade reached €11 billion in 2022. Recognizing the strategic importance of a trade deal, Malaysia and the EU agreed to explore ways to overcome regulatory hurdles and align trade policies with evolving global standards.

The breakthrough came on January 20, 2025, when Prime Minister Anwar Ibrahim and European Commission President Ursula von der Leyen confirmed the official resumption of MEUFTA negotiations during a bilateral meeting in Brussels, which was described as “an ambitious, modern, and balanced EU – Malaysia free trade agreement (FTA).”. This decision reflects a renewed commitment to deepening economic cooperation and enhancing investment flows between Malaysia and the EU.

The renewed negotiations aim to:

• Strengthen economic ties in key sectors such as electrical and electronic (E&E) products, palm oil and its derivatives, and optical & scientific equipment.
• Attract significant EU investments in green energy and advanced manufacturing, aligning with Malaysia’s New Industrial Master Plan 2030.
• Address outstanding concerns, including market access, non-tariff barriers, public procurement policies, and intellectual property rights.

While both parties have expressed optimism, negotiations remain complex. The EU is expected to push for higher sustainability benchmarks in trade agreements, while Malaysia continues to seek fairer market access and less restrictive trade measures on its agriculture and palm oil exports. Additionally, both sides have committed to ensuring strong provisions on labor rights and environmental protection, reinforcing shared values in global trade.

The resumption of MEUFTA negotiations in 2025 is a significant milestone in Malaysia-EU trade relations. If successfully concluded, the agreement could unlock new growth opportunities, enhance economic resilience, and strengthen bilateral trade ties in an increasingly competitive global market. With both sides now actively engaged, the next phase of negotiations will be crucial in determining whether MEUFTA can finally be realized after more than a decade of delays.