The Malaysian economy performed slightly better than expected with 5.9% growth in the second quarter of 2024 (2Q24) from a year earlier, underpinned by strong domestic demand and a further expansion in exports.

The result also surpassed the economy’s 1Q24 y-o-y growth of 4.2%.

Bank Negara said in its economic report that household spending increased amid sustained positive labour market conditions and larger policy support while investment activity was underpinned by continued progress in multi-year projects and capacity expansion by firms.

Exports improved amid higher external demand and positive spillovers from the global tech upcycle.

Most supply-side sectors registered higher growth, including the manufacturing sector, which was supported by broad-based improvement across all clusters, particularly in electrical and electronics (E&E).

The services sector also recorded strong growth, driven by consumer and business-related subsectors.

Looking ahead, the central bank forecast that growth in the second half of the year (2H24) will be driven by domestic spending with continued strong support from external demand.

Bank Negara Governor Datuk Seri Abdul Rasheed Ghaffour said domestic household spending will be underpinned by continued employment and wage growth as well as policy measures.

Investment activities will be driven by progress in multi-year projects across private and public sectors.

“Catalytic initiatives announced in national master plans and the higher realisation of approved investments are also key drivers for investment activities,” said Abdul Rasheed in a statement.

On external demand, exports are also expected to be lifted by the ongoing global tech upcycle and continued strong demand for non-electrical and electronics goods.

Improvement in tourist arrivals and spending are expected to continue.

Upside risks to growth include greater spillover from the tech upcycle, robust tourism activities, and faster implementation of existing and new investment projects, while downside risks stem from a downturn in external demand, an escalation in geopolitical conflicts and lower-than-expected commodity production.

According to Bank Negara, the country’s headline and core inflation edged higher to 1.9%, for an average of 1.8% in 1H24.

The increase in the headline and core inflation is expected to continue edging higher in 2H24, said the central bank, mainly due to the rationalisation of diesel subsidies.

However, this impact will remain manageable given mitigation measures by the government to minimise cost impact to businesses.

“For the rest of the year, upside risks to inflation depend on the extent of the spillover effects from further domestic policy measures on subsidies and price controls to broader price trends, as well as global commodity prices and financial market developments.

Overall, headline and core inflation for the year are projected to remain within the forecast ranges of 2‒3.5% and 2‒3% respectively.