Maybank Investment Bank (Maybank IB) expects global real GDP growth to slow (2024E: +2.8%; 2023E: +3.3%) as US economy “soft lands” (2024E: +1.0%; 2023E: +2.2%) on factors like household excess savings and resilient job market supporting consumer spending; supply-side/industrial policies (e.g. Inflation Reduction Act; CHIPS Act) lifting US manufacturing investment; and expansionary fiscal policy negating Fed’s interest rate hikes.
With US “soft-landing”, the spotlight on key downside risk to global economic outlook is on China’s growth (2024E: +4.4%; 2023E: +5.2%) given its “underwhelming” post-pandemic growth and the spillover risk from its weak real estate sector. More policy interventions can be expected in 2024, including larger deficit spending by the Government and further interest rate cuts.
ASEAN-6 growth is expected to pick up (2024E: +4.7%; 2023E: +4.0%) on measures to support domestic economy (e.g. further boost to the on-going tourism recovery via relaxations of visa requirements for foreign travellers) and green shoots of recovery in global electronics cycle that augurs well for ASEAN-6 manufacturing output and exports outlook, Maybank IB said in its Malaysia 2024 Outlook & Lookouts released today (Dec 18).
Malaysian Economy – Rising Momentum
Similarly, Malaysia’s economic growth is expected to be firmer (2024E: +4.4%; 2023E: +3.9%), underpinned by resilient consumer spending, sustained private and infrastructure investment momentum, plus recoveries in trade-related services and manufacturing industries, namely tourism and electronics.
“Transition” in 2023
Transition to a more stable domestic political environment… 2023 started with the fifth government in charge since 2018 following the 15th General Election (GE15, 19 Nov 2022). However, with the Unity Government led by Prime Minister (PM) Datuk Seri Anwar Ibrahim controlling two-thirds majority in the Parliament i.e. 147 MPs from the ruling coalition plus 5 Opposition MPs (from Bersatu party) supporting PM, we see a “transition” to political stability, at least until the next general election which is not due until within 60 days after 18 Dec 2027 when Parliament “auto-dissolves” i.e. completion of a full five-year term after the start of current Parliament on 19 Dec 2022.
… enables focus on medium to long term transition of the economy. 2023 also saw a flurry of blueprints, masterplans, roadmaps and legislations – notably between July and Oct – that aim to “transition” the economy over the medium to long term. These include MADANI Economy (27 July 2023), National Energy Transition Roadmap (NETR – Part 1 on 27 July 2023 and Part 2 on 29 Aug 2023), New Industrial Master Plan 2030 (NIMP2030, 1 Sep 2023), 12th Malaysia Plan Mid-Term Review (12MP MTR, 11 Sep 2023), Hydrogen Economy & Technology Roadmap (HETR, 5 Oct 2023), as well as Fiscal Responsibility Act and Energy Efficiency & Conservation Act (FRA and EECA, 11 Oct 2023), Maybank IB cited.
“Take off” in 2024
2024 should therefore be the “take off” year i.e. execution and implementation of the blueprints, masterplans and roadmaps, with fiscal reforms and economic restructuring high on the agenda.
Fiscal reforms high on the agenda, with the key element being the implementation of targeted rationalisation of fuel subsidy in 2024… Fuel and energy are the largest item in Government spending on subsidies and social assistances.
Fuel subsidy rationalisation is one of the key fiscal strategies to realise the targets in 12MP MTR and MADANI Economy – and legislated by FRA – to lower budget deficit, as per Budget 2024 (4.3% of GDP vs the estimated 5.0% of GDP in 2023), the Medium-Term Fiscal Framework (2024-2026 average: 3.5% of GDP), and ultimately capping deficit spending to no more than 3% of GDP under FRA and MADANI Economy. This is on top of FRA’s target to lower Government’s total debt to 60% of GDP in 3-5 years’ time (end-3Q 2023: 62.5%; end-2023E: 63%; 2024E: 64%; Fig 21).
Furthermore, blanket fuel subsidy is at odds with NETR and NIMP2030, especially in relation to the overall objective of net zero greenhouse gas (GHG) emission by 2050 (note: in 2019, road transport contributes to 85% of total transport emissions, and transport accounts for 21% total emissions in Malaysia), as well as specific targets on EV ecosystem like: 1) raising the electric vehicle (EV) shares of new vehicles sales to 20% by 2030, 50% by 2040 and 80% by 20501 (vs <1% currently), and 2) building 10,000 EV charging stations nationwide by 2025 (vs 1,434 EV charging stations nationwide currently).
… together with economic restructuring where the main “event” is Progressive Wage Policy (PWP) as the key labour market policy intervention/ measure to address the economic, social and political issues of cost of living, adequacy of retirement savings and equality i.e. raise workers income ultimately labour share of GDP over the next 10 years, which are the targets under 12MP MTR, NIMP2030 and MADANI Economy. The White Paper on PWP was tabled at the Parliament on 30 Nov 2023, and key takeaways and highlights include:
– PWP is optional via voluntary participation of employers and complements the mandatory Minimum Wage of MYR1,500 per month by covering local workers earning above the Minimum Wage and up to MYR4,999 per month.
– PWP will subsidise workers’ wage increases by MSME (i.e. excluding MNCs and GLCs) who are qualified and registered as “Progressive Wage Employers” for 12 months with monthly incentive of up to MYR200 for entry-level workers and up to MYR300 for non-entry level workers.
– Wage increases under PWP is productivity-based, thus committing workers to raise productivity, improve skills via Government-recognised training courses and programmes, and expand job scopes.
In terms of PWP’s implementation timeline, there will be:
- Engagement sessions between the stakeholders (i.e. representatives of government, employers and workers), development of PWP registration, selection and monitoring systems, and publication of proposed guidelines on annual wage increases in 1Q 2024.
Registration and selection of employers for the PWP pilot programme in Apr-May 2024.
- Implementation of PWP pilot programme in June-Sep 2024
- Assessment of the PWP pilot programme in Sep 2024.
- Legislations, policies and measures in 2024 as follow up and complement to 2023 blueprints, masterplans, roadmaps
Maybank IB also expects to see further policy announcements to complement – and as follow ups to – the “macro” or “big-picture” blueprints, masterplans and roadmaps, especially at sector/industry levels.
These include:
- Government Procurement Act (GPA) is the next key legislative measure after FRA on fiscal reforms to further enhance fiscal governance and strengthen discipline and oversight in public finance. It is expected to be tabled at the Parliament in 2Q 2024. GPA is to improve governance in public spending and contracts, including via open tender as well as compulsory audit and accountability in large-value procurement/contracts. The legislation is in line with the MADANI Economy target to improve Malaysia’s position in the Global Corruption Perception Index to Top-25 in 10 years’ time (2022: #61).
- Establishment of a renewable energy (RE) exchange as a marketplace and aggregator to facilitate RE pricing and trade, both domestically and crossborder.
This is a crucial next step following earlier key RE policy moves such as adjustments of RE tariffs to better reflect local and international market pricing; raising RE quota and installed capacity targets; and as well as abolishing RE export ban.
- Releases of blueprints for High-Value High Growth (HVHG) sectors and industries that provide details on sector/industry-specific targets, incentives, initiatives and pilot/flagship/catalytic projects. After such blueprints for the electronics and electrical (E&E) industry and energy transition-based industry embedded in NIMP 2030 and NETR respectively, the next blueprint is for technology and digital-based industries that aims to intensify the development of start-ups and attract global technology companies to Malaysia, which is expected to be out in Feb 2024. This will be followed by blueprints for modern agriculture and agro-based industry and the rare earth industry.
- The next instalment of National Automotive Policy (NAP) after the last “update” back in 2020. We expect the next version of NAP to further advance the policy focus and facilitations on EV ecosystem in support of NETR and NIMP 2030. We will also be looking at measures like vehicle “end of life” or “scrapping” policy for both internal combustion engine (ICE) vehicles and EV, coupled with specific incentives for EV as replacement for ICE vehicles under the “end of life” or “scrapping” policy.
In addition, Malaysia and Singapore is scheduled to sign the Memorandum of Understanding (MoU) on the Johor-Singapore Special Economic Zone (SEZ) on 11 Jan 2024.
The SEZ aims to further enhance the long-standing economic ties between the two neighbouring countries, among others by strengthening the ecosystem of the Iskandar development region and Singapore; increase the flows of investments/capitals, goods and people between the two sides of the Causeway; and what we see as the focus industries/sectors as well as areas of cooperations/ collaborations like RE, tourism, environment, innovation, education and finance (taking cue from the designation of Johor’s Forest City as Special Financial Zone that was announced in Aug 2023, with incentives that include special income tax rate of 15% for skilled workers and multiple entry visas).
Another policy announcement pending that is worth mentioning here is the review of plantation sector’s windfall profit levy.
Currently, the levy is presently charged at a rate of 3% on crude palm oil (CPO) prices above MYR3,000/tonne in Peninsular Malaysia and above MYR3,500/tonne in Sabah & Sarawak. To note, the 2023 Shadow Budget of Pakatan Harapan (PH – the main group in the current coalition Government) proposed reverting the levy on Sabah and Sarawak to the original 1.5% as well as raising the CPO price thresholds for the imposition of the levy to above MYR3,500/tonne for Peninsular Malaysia and above MYR4,000/tonne for Sabah and Sarawak.
“Translating” into firmer growth
Pencilling firmer domestic real GDP growth in 2024. Despite our forecast of slower global economic growth (2024E: +2.8%; 2023E: +3.3% in 2023) that is mainly due to the projected slowdowns in US (2024E: +1.0%; 2023E: +2.2%) and China (2024E: +4.4%; 2023E: +5.2%), Maybank IB expects firmer domestic real GDP growth (2024E: +4.4%; 2023E: +3.9%), underpinned by resilient consumer spending, pick up in Government consumption and private investment, plus recoveries in the trade-related services and manufacturing industries, namely tourism and electronics.
Consequently, 2024 economic growth will be driven primarily by private consumption (2024E: +5.1%; 2023E: +4.9%), Government consumption (2024E: +4.1%; 2023E: +3.2%), private investment (2024E: +5.3%; 2023E: +5.0%) amid rebounds in exports (2024E: +3.2%; 2023E: -7.7%) and imports (2024E: +3.8%; 2023E: -7.5%) of goods and services, plus services (2024E: +5.7%; 2023E: +5.5%) and manufacturing (2024E: +3.0%; 2023E: +1.0%) sectors.
The outlook of resilience in consumer spending growth is based on labour market conditions and worker/consumer-friendly policies i.e. stable job market conditions (e.g. unemployment rate forecast of 3.4% in 2024 vs 3.5% in 2023), implementation of PWP, and consumer-friendly Budget 2024 measures such as the “special bonus” of between MYR1,000 and MYR2,000 for civil service employees and retirees to be paid in Feb 2024, and higher allocations for financial assistance programmes for low and low-middle income individuals/households e.g. Rahmah Cash Assistance (STR) raised to MYR10b in 2024 from MYR8b in 2023 with the minimum and maximum amount per eligible recipient raised to MYR500 and MYR3,700 respectively from MYR300 and MYR3,100 respectively; expand and extend the coverage of the MYR100 per month Basic Rahmah Contribution (SARA) to 700,000 recipients (from 200,000 recipients) and to 12 months (from 6 months).
Positive investment growth momentum is expected to be sustained, reflecting:
- Higher Budget 2024’s gross development expenditure allocation of MYR90b (vs MYR83.6b in 2023 i.e. after taking out the USD3b redemption of 1MDB bond from the MYR97b total).
- Realisation of the robust approved private sector investments since 2021 – which, at MYR225b in 9M 2023, had exceeded the full-year target of MYR200b – and is expected to remain strong in 2024, especially with the MYR347b potential FDIs garnered from Prime Minister’s recent trips and MITI’s missions to China, US, Japan, South Korea, Singapore and the Middle East (i.e. Saudi, UAE).
- Progress in the on-going major infrastructure projects [e.g. Klang Valley Light Rail Transit 3 (KVLRT3); East Coast Rail Link (ECRL); Pan Borneo Highway (PBH); Johor Bharu-Singapore Rail Transit System (JB-SG RTS); MyDIGITAL 5G], and the upcoming and potential new major infrastructure projects e.g. Klang Valley Mass Rapid Transit 3 (KVMRT3); five additional stations for KVLRT3; Bayan Lepas LRT; Penang and Johor Bus Rapid Transits (BRT); Subang, Penang and Tawau Airports expansions; new Kota Kinabalu (Sabah) International Airport; Sarawak-Peninsular Malaysia Submarine Power Cable; as well as MYR11.8b for nationwide flood mitigation.
Tourism and Tech driving exports rebound. Meanwhile, the bank’s forecast of a rebound in exports of goods and services mainly reflects the continuing recovery in tourism and the emerging recovery in electronics cycle.
To note, the government on 27 Nov 2023 announced visa-free entry to citizens of China and India for stays of up to 30 days starting 1 Dec 2023 until 31 Dec 2024 to boost inbound tourists and further support the tourism industry’s post-pandemic recovery.
Meanwhile, the World Semiconductor Trade Statistics (WSTS) reported that global chip sales stabilised in Sep 2023 at +0.3% YoY after 14 straight months of decline.
Further, WSTS expects global semiconductor sales to rebound by +11.8% in 2024 (2023E: -10.3%) which augurs well for the outlook of Malaysia’s electronics – specifically semiconductor – exports.
Wildcard – “Political will”…?
“Political will” is key in any medium-to-long-term economic restructuring and reforms, especially with the politically unpopular rationalisation of the long-standing fuel subsidy.
Reshuffle of the Cabinet in late-2023- – which the PM says will remain until the next general election – signals the commitment to implement and execute the “take off” for the country’s medium-to-long-term “transition” as outlined by the blueprints, master plans and roadmaps.
PM announced a Cabinet reshuffle on 12 Dec 2023 that, in our opinion, is oriented towards strengthening the focus and deliveries on the economy broadly, and on specific areas like investment and business promotions, sector/industry developments (e.g. energy, digital) as well as reforms and transition agendas (e.g. labour market; sustainability). These include:
- Appointment of a non-politician – Senator Datuk Seri Amir Hamzah Azizan, former CEO of the Employees Provident Fund (EPF) who also has a diverse experience in the corporate sector – as the Second Finance Minister (MoF2) to assist PM who double hats as the Finance Minister.
- Retaining the Ministers for Economy (Rafizi Ramli) and for Investment, Trade and Industry (MITI – Tengku Datuk Seri Utama Zafrul Tengku Abdul Aziz) who are the key persons for the National Energy Transition Roadmap, Progressive Wage Policy and New Industrial Master Plan 2030.
- Splitting the Ministry of Natural Resources, Environment and Climate Change (previously under Nik Nazmi Nik Ahmad) into the Ministry of Energy Transition & Public Utilities (now under Deputy Prime Minister Datuk Seri Fadillah Yusof) and the Ministry of Natural Resources and Sustainability (headed by Nik Nazmi), as well as separating the Communication and Digital portfolio (previously under Fahmi Fadzil) into Communication (helmed by Fahmi Fadzil) and Digital (headed by Gobind Singh Deo, former Communication and Multimedia Minister) portfolios.
Maybank IB also finds it interesting that the Foreign Minister is handed to Datuk Seri Utama Mohamad Hassan, who was the Defence Minister prior to the Cabinet reshuffle. He is not only presently UMNO number 2, but also formerly from the banking and corporate world. Another UMNO senior politician with corporate background in the reshuffled Cabinet is Datuk Seri Johari Abdul Ghani, who was former Cabinet minister and brought back to oversee the Plantations and Commodities Ministry.
Political “runway” of four years before next general election; fiscal legislations and moderating inflation are the “carrots and sticks” to implement and execute subsidy rationalisation. Timing wise, the government “can do” it because of the “political runway” of four years before the next general election i.e. not due until within 60 days of 18 Dec 2027 when the current Parliament “auto-dissolves” on completion of the full five-year term from the start of the current Parliament on 19 Dec 2022.
And the government “has to do” it because of the FRA targets on budget deficit and Government total debt reductions (re: Figs 20-21). In addition, with monthly inflation rate decelerating to low-single digit i.e. sub-2% YoY since Sep 2023 (Fig 34), there is the window of opportunity to execute the targeted subsidy rationalisation.
Furthermore, things have already moved in 2023 as far as subsidy rationalisation is concerned i.e. the targeted electricity bill subsidy since the start of 2023 that excluded MNCs, high-and-medium voltage industrial and commercial users as well as 83,000 domestic/residential users (of total 8.1m) with monthly electricity consumption of over 1,500 kilowatt hours (kWh); and the removal of chicken price ceiling – and thus subsidy – on 1 Nov 2023.
Global Growth To Drift Lower In 2024
Global real GDP growth is expected to moderate to +2.8% in 2024 after displaying resilience with +3.3% expansion in 2023 (2022: +3.5%). This outlook mainly reflects our forecasts of slower growth in US (2024E: +1.0%; 2023E: +2.2%) and China (2024E: +4.4%; 2023E: +5.2%), amid continued sub-1% growth in Europe (Fig 1).
The onset of slower global growth in 2024 is signalled by the downtrend in the global composite purchasing managers index (PMI, Fig 2) since mid-2023 to just over 50 as of 4Q 2023. This mainly reflects the same trajectory in global services PMI as the expansion in services activities following the full re-opening of the global economy dissipates with the normalization in pent-up spending. Meanwhile, global manufacturing PMI languishes below 50 throughout 2023 as consumer spending shift to services (with full economic opening) from goods (during lockdowns and movement restrictions), although it has essentially bottomed and showing green shoots of recovery in late-2023.
Inflation and interest rate dynamics
Globally, inflation rates have peaked and are slowing, while interest rate hikes cycle is over. Inflation rates globally have peaked and are moderating (Fig 4). As inflation slows, benchmark interest rates have also peaked and central banks are broadly on pause mode, signaling the end of the hike cycle (Fig 5-7). The debate on monetary policy has shifted to “hold for how long?” now.
To note, 2023’s final US Fed’s FOMC meeting on 12-13 Dec 2023 saw Fed kept the fed funds rate (FFR) target range at 5.25%-5.50% for the third FOMC meet in a row; FOMC statement and forecasts point to Fed’s “soft landing” expectation; and Fed’s latest “dot plot” signals FFR cuts of -75bps in 2024 and -100bps in 2025 (re: US FOMC Meeting, 12-13 Dec 2023 – Fed on hold, signals -75bps cuts in 2024, 14 Dec 2023).
Market pricing in earlier and bigger rate cuts in 2024. Market implied policy interest rates (Fig 8) are signalling major central banks’ benchmark interest rates – i.e. US Federal Reserve (US Fed), European Central Bank (ECB), Bank of England (BoE) – will be cut by between -75bps to as much as -150 bps – and thus early – in 2024. ASEAN central banks are also expected to lower their benchmark interest rates, but generally by smaller quantum of between -25bps and -50bps, except for Philippines at -100bps. The outlier is Japan, where Bank of Japan (BoJ) is expected to start normalizing from its ultra-easy monetary policy stance by ending its negative interest rate policy.
But inflation expectations still “sticky”. It is important to note that central banks’ interest rate decisions are also guided and influenced by inflation expectations going forward, not just actual inflation outcome thus far. In this regard, we noted that the US Fed’s 5-Year Breakeven Inflation Rate (i.e. a measure of market participants’ expected inflation rate next five years derived from 5-Year Treasury Constant Maturity Securities and 5-Year Treasury Inflation-Indexed Constant Maturity Securities) points to the still “sticky” inflation expectations.
