GDP to buck slowing trend
GDP to buck slowing trend

GDP to buck slowing trend

PETALING JAYA: Despite the gloomy global economic outlook for 2024, the local economy is poised to buck the trend of slowing growth in major economies.

Economists expect the various economic measures set to be implemented this year to offset any downside risks that would impact the domestic economy.

The economy is expected to grow by 4% to 5% this year, based on official estimates. Economists are projecting economic growth for 2024 to be between 4.2% and 5%.

Meanwhile, in its latest World Economic Outlook, the International Monetary Fund (IMF) left its forecast for global real gross domestic product (GDP) growth in 2023 unchanged at 3% but cut its 2024 forecast to 2.9%.

Bank Muamalat Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid told StarBiz the global economy would continue to remain challenging.

He said this would stem from the possible slowdown in the United States following the sharp increase in the Federal Reserve (Fed) fund rate since 2022, as well as the collapse of the residential property market in China that has taken a serious toll on the world’s second largest economy.

He said the ongoing geopolitical risks have also affected the supply chain.

“The government has indicated its resolve for an economic reform agenda. The National Energy Transition Roadmap, New Industrial Master Plan (NIMP) 2030 and Budget 2024 are all set to be implemented this year.

“The Public Finance and Fiscal Responsibility Act, which was passed in Parliament recently, would also keep the government finances on a firmer footing and the appointment of a technocrat to be the second finance minister would mean the fiscal reforms will be implemented accordingly.”

“I think foreign investors would appreciate this and they might consider Malaysia a place to make investment.

“Should they decide to come to Malaysia and push the FBM KLCI higher, it might create a better confidence level among businesses, which then can propel the real economic activities,” he said.

Afzanizam is projecting the GDP growth for 2023 to be at 3.8%, and 4.3% in 2024.

OCBC Bank senior Asean economist Lavanya Venkateswaran

OCBC Bank senior Asean economist Lavanya Venkateswaran, who is forecasting a 4.2% GDP growth this year, believes the Malaysian economy would be on stronger footing in 2024 compared to 2023.

“We expect private consumption expenditures to stabilise in 2024 following a volatile post-Covid-19 pandemic period.

“Secondly, we expect the government to focus on bolstering infrastructure, catalysed by the recently announced medium-term plans including the NIMP and mid-term review of the 12th Malaysia Plan (12MP). The 12MP is for the period from 2021 to 2025,” she said.

These plans also focus on deepening supply chain reconfigurations, attracting foreign investments and developing human capital to boost potential growth prospects.

Venkateswaran expects the government’s focus on fiscal consolidation, specifically introducing a targeted fuel subsidy mechanism, would bolster investor confidence and support growth for this year.

MARC Ratings Bhd chief economist Ray Choy

MARC Ratings Bhd chief economist Ray Choy said the country is poised for better economic prospects this year.

Externally, he said the likelihood of interest rate cuts in the United States and other advanced economies provides a basis for a stronger ringgit.

He said both the domestic equity and bond markets have experienced a sharp rebound in foreign inflows, totalling RM6.9bil in November 2023, compared to outflows of RM4.7bil in October.

An easing of global monetary conditions would also reduce the cost of funds, increase credit availability and offer relief from high debt servicing costs, he said.

Choy anticipates Malaysia’s GDP growth to improve from 4% in 2023 to 4%-4.5% in 2024.

UCSI University Malaysia assistant professor of finance Liew Chee Yoong

UCSI University Malaysia assistant professor of finance Liew Chee Yoong said the local economy is expected to be only on a slightly stronger footing in 2024 compared to 2023.

He said this slight optimism is led by increased projected private domestic consumption and fiscal spending in transformative sectors.

“The country’s move towards digitalisation and sustainable development are also expected to contribute to this slightly stronger projected economic growth,” he added.

Liew, who is also a research fellow at the Centre for Market Education (CME), said that for this year, he expects GDP growth to be within the range of 1% to 3%, which is consistent with the IMF’s projection of a slower global economic growth rate for 2024 i.e. 2.9%.

Centre for Market Education (CME) CEO Carmelo Ferlito

Economist and CME chief executive officer Carmelo Ferlito acknowledged that 2024 would be a tough year.

He noted that signals from the housing market in the United States are not comforting. Existing-home sales fell to a 13-year low in October last year and this would have a spillover effect for hardware stores, furniture sellers and construction firms.

“What happens in the property market is often a good proxy of what is going to happen to the rest of the economy,” he said.

He said although the Fed may cut rates this year, it may however create more confusion and eventually lead to new asset bubbles within a framework of price stability.

“Fortunately, Bank Negara followed a more prudent approach and the inflation experienced by Malaysia has been much lower than what we have observed in the West.

“The country may be better equipped to face the scenario of an international economic turbulence, although – it goes without saying – it cannot totally escape it,” Ferlito added.

Liew felt Malaysia’s economy may encounter severe headwinds in 2024. There is a risk of the war in Gaza spiralling out of control if it does not end in 2024.

Worst-case scenario, he said, a repeat of the oil supply shock in 1973.

“This may happen if the crisis spread throughout the Middle East and beyond with the Organisation of Islamic Cooperation and the Organisation of the Petroleum Exporting Countries reducing their oil supply globally to lower the supply of oil to Israel and to those countries that support Israel’s war in Gaza.

“This will drive up the global prices of oil and inflation around the world, which may lead to a global recession.”

Liew said there is also a risk of a health crisis re-occurring with the new strains of the Covid-19 virus.

“If a new strain of Covid-19 virus, which could affect human health despite being vaccinated, or a new lethal and highly transmissible disease virus appear and affect human health in 2024, global economic activity may slow down again, and this may lead to another downfall of the global economy since the Covid-19 pandemic.

“Therefore, it is important to monitor how Malaysia navigates external challenges and headwinds while capitalising on internal growth opportunities.

“The balance between fostering economic growth and maintaining fiscal and monetary stability will be essential for sustainable development in 2024,” Liew noted.

Elaborating on the potential headwinds that could impact Malaysia’s economic growth, MARC’s Choy said the ongoing conflict in the Middle East and Eastern Europe would cause uncertainties that could disrupt trade relations and trigger commodity price shocks.

“There is also the risk that rate cuts in the United States and Europe might occur too few and too late as a delayed reaction to a recession.

“In November 2024, markets will eagerly anticipate the outcome of the US Presidential election, as it holds relevance to Malaysia’s economy in the context of shaping US-China-Asia relations,” he said.

OCBC’s Venkateswaran expects the global economy to weaken in 2024 versus 2023.

She said should domestic offsets, which the bank has pencilled for the local market in its baseline including better investment spending and stabilising household spending disappoint, Malaysia’s economy may slow more-than-expected.

“Simultaneously, risks from stickier inflationary pressures on account of the El Nino phenomenon and/or heightened geopolitical tensions could limit the ability of global central banks to ease monetary policy, with knock-on implications to global portfolio flows.

“Numerous elections are scheduled in major economies including the United States, countries in Europe, India, Taiwan, and Indonesia, and substantial trade or foreign policy shifts from these countries may have implications for Malaysia,” she noted.

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