The research house said despite Malaysia’s ongoing struggle with the downturn in global trade, there is optimism stemming from the robust performance of its exports.
“The nascent recovery in the global electronics cycle, as seen in peers like Korea and Singapore, provides some hope that Malaysia’s exports are seeing the light at the end of the tunnel.
“Positive signs of recovery have emerged for Malaysia since H2 2023, with higher-than-expected growth of 3.3% year-on-year (y-o-y) in Q3 2023,” it said today.
HSBC said the manufacturing sector only contracted by 0.1% y-o-y in Q3 2023, a small downturn after a positive 0.1% growth in Q2 2023.
It noted that trade also showed a similar trend, with the magnitude of export decline shrinking to single digits since October. The weakness was mostly led by a sharp correction in global commodity markets, particularly oil, liquefied natural gas and palm oil.
Tourism sector a bright spot
In addition to the “green shoots” in trade, it said Malaysia’s tourism-related sectors continue to provide much-needed support as Malaysia is among the frontrunners in Asean in attracting Chinese visitors.
“The tourism outlook has brightened further after the recent announcement of China and Malaysia’s mutual visa exemption programme, making it more competitive among regional peers.”
It added that consistent foreign direct investment (FDI) continues to pour into Malaysia, making it one of the top recipients in Asean, enabling its manufacturing sector to rebound strongly when the trade cycle turns.
“We recently raised our growth forecast to 4.1% (3.8% previously) for 2023 but retained our 2024 forecast at 4.5%,” it said.
On monetary policy, HSBC anticipates that Bank Negara Malaysia (BNM) will keep the overnight policy rate (OPR) steady at 3% this year.
“Our base case is for BNM to pause for a prolonged period of time until end-2024 before a possible 25-basis point rate cut in Q1 2025.
“That said, there may be more tightening bias if inflation shoots up after the shift to targeted subsidies in 2024,” it added.
BNM has kept the policy rate steady at 3% since May last year despite regional peers’ recent resumptions of rate hikes.
A clear distinction is that Malaysia’s inflation has been well in check, though partly thanks to continued subsidies, said HSBC.
Red Sea crisis
Meanwhile, HSBC Group’s chief Asia economist and co-head of Global Research Asia Frederic Neumann said the shipping disruptions in the Red Sea related to the Israel-Hamas conflict should not disrupt the Malaysian economy significantly.
He argued that the impact of the Red Sea crisis on the recovery of Malaysia’s exports hinges on its duration. “If the crisis persists for only a few weeks, it is manageable.
“However, if it escalates, it will lead to prolonged disruptions in shipping, and undoubtedly weigh heavily on trade,” he said during the HSBC Asian Outlook 2024 briefing today.
US and British forces launched air strikes on Yemen last week in response to its Houthi militia’s attacks on ships in the Red Sea, a vital shipping lane for global trade.