Malaysia’s economy grew faster than expected in the fourth quarter of 2024 amid strong domestic demand and a recovery in exports, the central bank said, as it expects investment activities and household spending to drive growth this year.  

Bank Negara Malaysia said the 5 per cent year-on-year growth in gross domestic product during October-December was driven by domestic demand, strong investment activity, and sustained household spending.

But it cautioned that the outlook remains subject to risks, including an economic slowdown in major trading partners amid heightening expectations of global trade and investment restrictions, as well as lower-than-expected commodity production.

The fourth-quarter reading was above both an official advance estimate and analysts’ forecast in a Reuters poll of a 4.8 per cent expansion, but softer than the 5.4 per cent expansion in the previous quarter.     

On a quarter-on-quarter seasonally-adjusted basis, the economy contracted 1.1 per cent, compared to a revised 1.9 per cent rise in the third quarter.

“Growth was weighed down by contraction in the commodities sector following lower oil palm output as well as the continued decline in oil production.” the central bank said in a statement.

Full-year growth in 2024 was 5.1 per cent, in line with an advance estimate and the government’s forecast range of 4.8 per cent to 5.3 per cent, and compared to 3.6 per cent in 2023.

Annual headline inflation moderated to 1.8 per cent in the fourth quarter of 2024 from 1.9 per cent in the third quarter, while full-year inflation eased to 1.8 per cent from 2.5 per cent in 2023.

Capital Economics said growth will ease slightly this year due to tighter fiscal policy and a moderation in investment, adding the government’s plan to further cut subsidies would weigh on consumer spending.

“We think GDP growth will ease to 4.8 per cent this year, from 5.1 per cent last year. But with inflation set to rise on the back of subsidy cuts, we think the central bank will keep interest rates unchanged for the foreseeable future.” Shivaan Tandon said in a note.

The central bank held its key interest rate unchanged at 3.00 per cent last month, where it has been since May 2023, citing strong economic growth and steady inflation, while warning of potential currency volatility.

The ringgit is expected to remain influenced by external factors, the central bank said, but Malaysia’s positive economic prospects and policies will provide support in the medium-term.