For Malaysia, 2023 was a challenging year dragged by external pressures and domestic uncertainties. Export growth experienced a broad-based decline in the second half of 2023, resulting in narrower trade and current account surpluses. Import growth, mirroring weaker domestic demand conditions, also eased last year. Capital outflows were volatile with the
financial account deficit persisting for five consecutive quarters to 2Q23 and the currency (MYR) depreciating over 4% in 2023 versus the US dollar.
As we head into 2024, OCBC said it is cautiously optimistic about Malaysia’s growth outlook. Export demand will be buffeted by numerous factors including slower global growth, fading commodity tailwinds, and persistent geopolitical tensions. The bottoming of the electronics export downcycle may provide much-needed support to export growth and to that end, the Singapore based bank forecasts goods export growth to remain negative at -1.0% YoY in 2024, although this is still better than in 2023. Resilient tourism inflows in 2024 will also provide some support for overall services.
Despite the weak external backdrop, the house forecast 2024 GDP growth to be resilient at 4.2% YoY versus the advance estimates of 3.8% in 2023 for Malaysia. The support to growth will come mainly from domestic demand factors, namely a stabilisation in private consumption growth and higher investment spending supported by a strong medium-term reform agenda.
Private consumption growth has been volatile since the onset of the pandemic after period of relatively stable growth of 7% (2010-19). Anecdotal evidence suggests that household balance sheets were significantly impacted by the pandemic and that savings were drawn out.
As the scars of the pandemic fade into 2024, OCBC expects private consumption growth to normalise, albeit settling at a lower rate versus pre- pandemic levels. Reform momentum has started to gain traction since 2H23 and this, we expect, will be supportive of investment spending. PM Anwar and his administration have launched numerous medium-term plans since July 2023 including the introduction of the ‘Madani Economy’, the National Energy Transition Roadmap (Part I and II), the New Industrial Masterplan 2030, the mid-term review of the 12 Malaysia Plan (MP), the Fiscal Responsibility Act and Government Procurement Act and Budget 2024.
While many of these plans are medium-term in nature, the immediate impact will be continued fiscal consolidation and reallocation of resources towards much investment spending and infrastructure projects. The government introduced the PADU database in January 2024 as a precursor to a more targeted fuel subsidy mechanism. Importantly, we expect Brent
prices to remain broadly stable at USD80/barrel in 2024 versus USD82/barrel in 2023 allowing for commodity related revenue collections to remain supported to some extent. The government forecasts the 2024 fiscal deficit to narrow to 4.3% of GDP from 5.0% of GDP in 2023. We think this is achievable at the juncture. More fundamentally, PM Anwar’s government is keen to attract FDI and position Malaysia’s as a leader within the region. These measures will build greater economic resilience and boost investor sentiment.
The modest ~4.3% reduction estimated in CPO prices underscores a picture of broader stable supply from key producers such as Malaysia and Indonesia, while global demand weakens consistent with slower global growth. That said, production risks remain on account of the ongoing El Nino phenomenon. This, combined with a less restrictive US rate environment will make it more conducive for BNM to keep rates on hold, under our baseline.
Although the inflation outlook will be impacted by the fuel subsidy rationalisation timeline, our baseline is for the inflation outlook to remain manageable. OCBC expects the US Federal Reserve to deliver at least a 100bp in rate cuts in 2024, allowing for more attractive interest rate differentials relative to the US. That said, it remains to be seen if this can manifest in higher portfolio inflows into Malaysia, especially given the view of slower global growth in 2024.
Notwithstanding, OCBC expect MYR to recover some lost ground in 2024 versus USD. This is based on expectations of a softer dollar (USD) and UST yields as the US Fed embarks on a rate cutting cycle in 2024. Moreover, stabilisation in China’s economy should also benefit Malaysia’s economy even as inbound tourism remains strong. Finally, improving domestic
fundamentals, will remain supportive of the currency.
