Economic and Financial Developments in Malaysia in the Fourth Quarter of 2024

The economy grew by 5% in the fourth quarter of 2024

The Malaysian economy expanded by 5% in the fourth quarter of 2024 (3Q 2024: 5.4%), driven mainly by domestic demand. The strong investment activity was underpinned by the continued realisation of new and existing projects. Household spending was sustained amid positive labour market conditions and continued policy support. In the external sector, exports of goods and services continued to expand while capital and intermediate imports growth moderated. On the supply side, growth was mainly accounted for by expansion in the services sector, with increased support from both consumer-related and business-related subsectors. The manufacturing sector was supported by the E&E and primary-related clusters. The construction sector continued to record double-digit growth with robust activities in the residential, non-residential and special trade subsectors. However, growth was weighed down by contraction in the commodities sector following lower oil palm output as well as the continued decline in oil production. On a quarter-on-quarter, seasonally-adjusted basis, growth declined by 1.1% (3Q 2024: +1.9%).

For the year as a whole, the Malaysian economy grew by 5.1% in 2024 (2023: 3.6%), due to continued expansion in domestic demand and a rebound in exports. On the domestic front, growth was mainly driven by stronger household spending reflecting favourable labour market conditions, policy measures to support households and healthy household balance sheets. In addition, strong investment approvals and further progress of multi-year projects by the private and public sectors, which includes catalytic initiatives under national master plans (i.e. New Industrial Master Plan, National Energy Transition Roadmap, and National Semiconductor Strategy) provided further impetus to investment growth. On the external front, exports recovered amid steady global growth, continued tech upcycle as well as higher tourist arrivals and spending. This provided support to the current account, leading to a continued surplus of 1.7% of GDP in 2024 (1.5% in 2023).

Headline and core inflation edged lower

During the quarter, headline inflation edged lower to 1.8% (3Q 2024: 1.9%). Lower inflation was observed for mobile communication services and RON97 petrol which was partially offset by higher inflation in other food-related items, particularly fresh vegetables and fish and seafood. Core inflation was lower at 1.7% (3Q 2024: 1.9%), driven largely by the moderation in inflation for mobile communication services which declined by 10.0% (3Q 2024: 0.0%). Inflation pervasiveness remained moderate. The share of Consumer Price Index (CPI) items recording monthly price increases remained below the long-term average of 39.8% (3Q 2024: 38.9%; 4Q 2011-2019: 41.7%). For 2024 as a whole, both headline and core inflation declined to 1.8% (2023: 2.5% and 3.0% respectively).

Ringgit recorded an overall appreciation of 2.7% against the US dollar in 2024

In 2024, the ringgit recorded an overall appreciation of 2.7% against the US dollar. The ringgit was also one of the few currencies in Asia to appreciate against the US dollar in 2024 besides the Hong Kong dollar, and the Thai baht, whilst other regional currencies experienced a depreciation.

Additionally, the ringgit similarly appreciated against other major currencies throughout the year, including the Singapore dollar, Korean won, and Japanese yen, with an overall appreciation recorded against Malaysia’s major trade partners (Nominal Effective Exchange Rate, NEER for 2024: 7.5%). This was despite the ringgit’s depreciation against the US dollar (-8.1%) and major trading partners (NEER: -3.4%) in the fourth quarter of 2024, which was in line with the broader movement of regional currencies. This movement was primarily driven by a stronger US dollar amid revised financial market expectations for smaller US policy rate reductions in 2025, and higher investors’ risk aversion arising from policy uncertainties under the new US administration.

In 2025, on a year-to-date basis (as of 12 February 2025), the ringgit appreciated by 0.1% against the US dollar and depreciated by 0.03% on a NEER basis against Malaysia’s major trading partners. External factors are expected to continue influencing the ringgit exchange rate. Despite that, Malaysia’s positive macroeconomic prospects and the ongoing implementation of structural reforms will provide medium-term support for the ringgit. BNM remains committed to ensuring the orderly functioning of the domestic foreign exchange market.

Higher credit growth, driven by growth in business loans and corporate bonds

Credit to the private non-financial sector grew by 5.2% in the fourth quarter (3Q 2024: 4.8%), amid higher growth in outstanding business loans and corporate bonds. The higher growth in business loans was attributed to loans for investment-related purposes. Growth for working capital loans was broadly steady. Across business sectors, stronger growth was recorded in the manufacturing and construction sectors. Household loans expanded by 5.9% (3Q 2024: 6.1%), following some moderation in loan growth for the purchase of housing and cars. Notwithstanding, the levels of loan applications and disbursements remained broadly sustained for the quarter.

Resilient domestic expenditure and improvement in external demand to support growth in 2025

Bank Negara Malaysia Governor Dato’ Seri Abdul Rasheed Ghaffour says, ‘Going forward, while the global environment could be challenging, growth of the Malaysian economy will be driven by robust expansion in investment activity, resilient household spending and expansion in exports supported by Malaysia’s strong economic fundamentals.’

On the domestic front, investment activities will be driven by the favourable progress of multi-year projects in both the private and public sectors and further lifted by the realisation of approved investments. Household spending will benefit from the continued support from employment and wage growth as well as Government policy measures. This includes the upward revision of the minimum wage and civil servant salaries. On the external front, the ongoing global tech upcycle, continued growth in non-electrical and electronic goods and higher tourist spending are expected to lift exports. The growth outlook remains subject to downside risks. Such risks include an economic slowdown in major trading partners amid the heightening risk of trade and investment restrictions and lower-than-expected commodity production. Nevertheless, potential upside to growth includes greater spillovers from the tech upcycle, more robust tourism activities and faster implementation of investment projects.

Headline and core inflation to remain manageable in 2025

Going forward, inflation is expected to remain manageable in 2025 amid easing global cost conditions and the absence of excessive domestic demand pressures. While the recently-announced domestic policy reforms would contribute to some upward pressure on prices, the overall impact on inflation is expected to be contained. Nevertheless, upside risks could arise from larger cascading effects from policies to broader CPI prices.