MARC Ratings prudent about global economy in 2024

PETALING JAYA: MARC Ratings Bhd is employing a cautiously optimistic outlook for the global economy in 2024, influenced by an uneven recovery and stubbornly persistent inflation in advanced economies, among other factors.

The ratings agency, a subsidiary of Malaysian Rating Corp Bhd (MARC), observed signs of divergence in economic momentum among major economies, which is illustrated by healthy US growth, China’s economic recovery amidst property sector distress and tepid expansion in the eurozone.

“Another central bank dilemma globally is the inflation outlook, as low unemployment and a slower pace of rising inflation offer market relief, although meeting major central banks’ inflation targets remains challenging,” it said in a statement released yesterday.

Turning its attention back home, it said Malaysia’s resilient private consumption, a firmer labour market and global trade diversion are expected to be supportive of a slightly stronger economic growth momentum of 4% to 4.5% next year.

On the other hand, it cautioned that a steeper-than-expected slowdown in trade would be the primary growth risk next year, before adding that its base case headline inflation forecast is anticipated to be around 2.4% to 2.8% in 2024 – following the 2.8% it predicted for the whole of this year – as inflation pressures continue to ease from a high base.

Having said that, MARC Ratings however foresees upside risks to its 2024 inflation forecasts, given the ripple effects of the anticipated rollout of the targeted subsidies mechanism – whose timing and extent of shifts are unknown at this stage – and elevated commodity prices amid geopolitical tensions, as reflected in the Finance Ministry’s broad inflation forecast range of 2.1% to 3.6%.

It added: “Given the spillover from tight global monetary conditions and domestic inflation upside risks, we foresee the overnight policy rate (OPR) in 2024 to be at 3%, with the potential for a hike to 3.25%.”

In its statement on Nov 2, 2023, Bank Negara views the current OPR level to be supportive of the economy.

“Should the interest rates rise, Malaysia’s strong banking system has the capacity to absorb potential credit risks and costs associated with higher interest rates, affording the central bank significant policy flexibility.”Notably, it pointed out that amid ongoing negative interest rate differentials and risk of capital outflows, the weakness of ringgit could possibly persist.