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Malaysia Expected to Benefit From Electronics Sector Recovery in 2H24

KUALA LUMPUR: Malaysia is expected to benefit from the electronics sector recovery in the second half of the year (2H24), given its position further down the electronics value chain.

The Institute of Chartered Accountants in England and Wales (ICAEW) said in a statement that the electronics sector is a bright spot for Southeast Asia’s economy, with the region projected to grow by 4% in 2024 and 2025.

“However, this is below the pre-pandemic average of 5% in the 5 years prior, largely due to expected challenges in domestic consumption as interest rates remain higher for longer,” it noted.

The association said electronics-focused exporters in Southeast Asia gained a better foothold in the first quarter of this year (1Q24), in large part due to the bottoming out of the electronics sector.

“The recovery in global semiconductor sales, which saw a 15.3% year-on-year (YoY) increase in 1Q24 has particularly benefited Vietnam, where export growth soared to an estimated 16.8% YoY.

“On a seasonally adjusted basis, Singapore also saw a rebound in non-oil domestic exports in April with an estimated 9.4% month-on-month (MoM) growth, marking a positive turn after 2 consecutive months of decline,” it said.

Meanwhile, on domestic consumption in the region, ICAEW said domestic consumption in Southeast Asia was more resilient than expected in 1Q24, but it is unlikely to drive growth in the coming quarter as tight monetary policy in the region is expected to restrain consumer spending.

“The persistent weakness in local currencies against the US dollar is likely to limit monetary easing options for Southeast Asian central banks.

“The strong US dollar, driven by the US Federal Reserve (Fed) high interest rates prevents local central banks from cutting rates without risking further currency depreciation,” it added.

The association noted that in 1Q24, Bank Indonesia was even forced to raise rates to arrest the rupiah’s decline.

“The ongoing tight monetary policy means that debt servicing and borrowing costs will remain high, likely constraining private consumption.

“Additionally, many consumers and businesses are continuing to consolidate as they are still recovering from the pandemic and are likely to focus on rebuilding savings or repairing their balance sheets in the short term,” it said.

On the ringgit, ICAEW noted that the Malaysian ringgit encountered significant challenges in 1Q24, largely attributed to the substantial discount of the Bank Negara Malaysia’s (BNM) policy rate to the US Federal Funds rate.

It opined that despite inflation remaining relatively low, hovering below 2% for the past 6 months and showing little indication of a significant increase, the currency weakness poses an obstacle to BNM’s ability to ease policy to support the economy.

“This challenge persists until the Fed initiates rate cuts, anticipated to occur in the 3Q, alleviating pressure on the ringgit and potentially enabling policy rate adjustments,” it added.


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