Malaysia poised for economic turnaround?

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Malaysia poised for economic turnaround?

KUALA LUMPUR, Jan 12, 2024: Is Prime Minister Anwar Ibrahim’s so-called Madani Unity Government (UG)’s socio-economic measures and reforms starting to bear fruits?

After a year of introducing new economic policies and a pulsating and blistering global tour by Anwar to promote and attract investors, there are signs that Malaysia’s economic engine has started.

The Ringgit is strengthening and even the International Monetary Fund (IMF) reported that the Malaysian economy has weathered external headwinds well and is projected to grow at four per cent in 2023.

Also, in its Economic Outlook 2024 report released today, RAM Ratings expects Malaysia’s economic momentum to steadily improve heading into next year, benefiting from a potential turnaround in external demand.

No News Is Bad News reproduces below the hopeful news of a brighter economic growth and future for Malaysians:

 

Ringgit poised to be best performer in Asia

ECONOMY

Wednesday, 10 Jan 2024

KUALA LUMPUR: The ringgit is expected to be the best performing currency across the region this year, according to Affin Hwang Investment Bank Bhd.

The local note is likely to appreciate from its current exchange rate of RM4.60 to the dollar to between RM4.40 and RM4.30, said head of research Loong Chee Wei.

“We can expect the ringgit to start appreciating against the dollar once the US Federal Reserve cuts its policy rates, which we expect will take place in June or September this year,” he said during launch of the Macro and market outlook 2024 report here yesterday.

It is likely that the United States will experience a soft landing and not go into recession in the next 12 months despite its labour market cooling off.

“We will see a reversal from the second half of this year in Malaysia as we expect the US economy to normalise.

“If the holding rates remain unchanged, we will see capital inflows back into the region, which is definitely a positive sentiment,” he said.

The recovery of the ringgit will be market-determined as expectations of improving investor disposition on the economy will support this.

“A stronger ringgit performance tends to benefit companies with higher debt levels like utilities but an indirect beneficiary could well be the property sector.

“Most people will invest in this sector if they think the ringgit is stable and unlikely to fall,” he said.

He also said that the Japanese yen will be another currency alongside the ringgit that will outshine the others this year.

On the whole, the research house forehad cast an upbeat and positive outlook for the economy in 2024 in line with the appreciation factors of the ringgit.

Chief economist Alan Tan said the projected gross domestic product (GDP) growth of 4.5% this year is achievable and would be backed by a few factors.

“In 2023, we saw growth coming from domestic demand including private consumption but for this year, we are seeing a more broad-based recovery while domestic demand will continue to hold at 5.4%,” he said.

According to Tan, one of the key drivers will be a turnaround in exports, which is expected to shift from negative to positive.

“A recovery in global tech will boost the country’s trade exports particularly in the semiconductor industry.

“Global sales are on a positive track, evident by eight consecutive months of growth since March last year,” he said.

He added that Malaysia is an open economy which is highly dependable on trade exports, so should there be an improvement in electronics, this will directly affect semiconductors.

While all regions are expected to be a part of the global improvement trend, Asia- Pacific and the Americas are projected to achieve double-digit growth.

Meanwhile, the research house announced five sectors which were upgraded to an “overweight”, further emphasising its growth prospects for this year.

Loong said the sectors include construction, plantations, utilities, banking and property.The anticipated revival of the high-speed rail project between Malaysia and Singapore, the RM10bil Penang Light Rail Transit project and the RM45bil Klang Valley mass rapid transit three project will see companies benefit from rising demand.

“The plantation sector will benefit from higher average selling price forecasts of RM4,200 to RM4,400 for crude palm oil due to lower global supply with Indonesia being affected by the El Nino phenomenon,” Loong said.

As for banking institutions, Loong pointed out that they had been highly resilient and contributed in terms of earnings breakdown.

“Favourable economic conditions, foreign direct investments, the rollout of domestic infrastructure projects, stable employment rate, resilient consumption spending and a ‘just and orderly’ transition to sustainability, are key drivers to the banking system’s loan growth forecast of 5% year-on-year in 2024,” he said.

Loong added that the National Energy Transition Roadmap would push the expansion of renewable energy generation capacity and its exports by the middle of this year.

“We forecast strong aggregated sector core earnings growth of 25% year-on-year in 2024.” - The Star

Malaysian economy to face better prospects in 2024

Published on 20 Dec 2023.

 

In its Economic Outlook 2024 report released today, RAM Ratings expects Malaysia’s economic momentum to steadily improve heading into next year, benefiting from a potential turnaround in external demand. Leading indicators point to signs that global trade and semiconductor demand have reached their nadir in 2023. Resilient domestic demand, supported by benign inflation and interest rates would also propel growth momentum. We have pencilled growth to reach 4.5%-5.5% in 2024 from an estimated 4.0% this year. 

Risks on the horizon for Malaysia’s growth will hinge largely on the global economy successfully achieving a ‘soft landing’ and avoiding further escalation of geopolitical conflicts. A spike in global food and commodity prices could pressure domestic demand, as will unintended price ripple effects of a poorly-executed retargeting of RON95 subsidies in 2H 2024.

On the fiscal side, RAM estimates fiscal deficit to clock in at 4.2% of GDP in 2024 (2023e: 5.0%), reflecting the fiscal consolidation path of the government. The narrower deficit will mainly be driven by a lower subsidy bill, better managing of other operating expenditures and higher tax revenue collections from an upside in economic conditions next year. With a need to fund critical development projects, government debt will remain relatively sticky at RM1.3 tril in 2024 (62.7% of GDP) and debt servicing not insignificant at 16.1% of total projected revenue in 2024 (2023e: 15.2%). Balancing between future economic growth and fiscal consolidation remains the standing order of the day. 

Summary of RAM’s key projections

Sources: Department of Statistics Malaysia, Bank Negara Malaysia, Bond Pricing Agency Malaysia, Ministry of Finance Malaysia, RAM
Note: 2023e & 2024f figures are RAM projections - RAM

IMF Staff Completes the 2024 Article IV Mission to Malaysia

December 14, 2023

End-of-Mission press releases include statements of IMF staff teams that convey preliminary findings after a visit to a country. The views expressed in this statement are those of the IMF staff and do not necessarily represent the views of the IMF’s Executive Board. Based on the preliminary findings of this mission, staff will prepare a report that, subject to management approval, will be presented to the IMF's Executive Board for discussion and decision.

 

· The Malaysian economy continues to be resilient to external headwinds, with growth drivers having shifted to robust domestic demand. Inflation is steadily moderating.

· While the broadly neutral monetary policy stance remains appropriate at present, a tightening bias is recommended in the near term, given upside risks to inflation. The appropriate fiscal consolidation path charted in the 2024 Budget needs to be underpinned by well-identified and high-quality revenue measures.

· Implementation of the policy initiatives under the MADANI Economy framework, the mid-term review of the Twelfth Malaysia Plan, and the accompanying national strategic plans, should accelerate to support medium-term growth and achieve high-income status.

Washington D.C.: An International Monetary Fund (IMF) team, led by Mr. Lamin Leigh, conducted discussions for the 2024 Article IV Consultation with the Malaysian authorities and other stakeholders during December 5-14, 2023. At the conclusion of the discussions, Mr. Leigh issued the following statement:

“The Malaysian economy has weathered external headwinds well and is projected to grow at 4 percent in 2023. Private consumption remained the main driver of growth throughout the year, supported by a healthy labor market. Exports to major trading partners weakened markedly due to subdued external demand and the economic slowdown in China. Headline and core inflation have been moderating, the latter more gradually, with headline inflation projected at 2.9 percent in 2023. Inflation expectations remained well anchored.

“Growth is projected to pick up slightly to 4.3 percent in 2024, supported by resilient private consumption and investment and a rebound in public spending. Inflation is projected to moderate further to 2.7 percent in 2024, though uncertainties around the inflation outlook remain, including on account of subsidy reform.

“A fiscal consolidation path, as appropriately set out in the 2024 Budget, would rebuild buffers, put debt on a downward path, and reduce fiscal risks. It should however be credibly underpinned by high-quality and durable revenue measures. Those measures, chief amongst which could be implementing a carefully designed consumption tax, would create space for critical investment needs and for targeted transfers to low-income households. They will also help buttress market confidence in Malaysia’s strong fundamentals. The authorities’ commitment to fiscal reforms is welcome, including the historic tabling of the Fiscal Responsibility Act, the ongoing subsidy reform, and progress on developing a medium-term revenue strategy.

“Monetary policy should pursue a tightening bias in the near term in a data-dependent manner to keep inflation contained and expectations anchored. The tightening bias is warranted by still higher than desirable core inflation and ongoing, yet uncertain, subsidy reform. Enhanced monitoring of household and corporate balance sheets is needed in the current environment of high interest rates, weaker exchange rate, and lower growth. Exchange rate flexibility should continue to be the first line of defense against external shocks.

“Implementation of the concerted policy agenda set out in the MADANI Economy framework, the mid-term review of the Twelfth Malaysia Plan, and accompanying national strategic plans, should accelerate to support medium-term growth and achieve high-income status. The authorities’ policy agenda is appropriately focused on addressing climate change, promoting digitalization, and enhancing governance and anti-corruption reforms. Reforms that would meaningfully lift wages across skill levels and ensure retirement income security should also be prioritized.

“The IMF team would like to thank the officials of the Government of Malaysia and Bank Negara Malaysia, other public institutions, as well as representatives from the private sector for the productive discussions.” - IMF