BNM maintains official 2024 real GDP growth forecast range of +4.0% to +5.0% (2023: +3.7%).
Domestic demand is projected to pick up (2024F: +5.4%; 2024F previous: +5.3%; 2023: +4.8%) on faster private consumption (2024F: +5.7%; 2024F previous: +5.7%; 2023: +4.7%) and gross fixed capital formation (2024F: +6.2%; 2024F previous: +6.1%; 2023: +5.5%) that reflects firmer outlook for private investment (2024F: +6.1%; 2024F previous: +5.4%; 2023: +4.6%) as public investment moderates (2024F: +6.2%; 2024F previous: +8.3%; 2023: +8.6%) alongside public consumption (2024F: +3.2%; 2024F previous: +2.6%; 2023: +3.9%).
Maybank Group chief economist Suhaimi Ilias, in a note released by Maybank Investment Bank (Maybank IB) that net external demand is expected to rebound (2024F: +2.1%; 2024F previous: +5.5%; 2023: -11.3%) on recovery in both exports (2024F: +4.0%; 2024F previous: +4.1%; 2023: -7.9%) and imports (2024F: +4.1%; 2024F previous: +3.9%; 2023: -7.6%) of goods and services.
By sectors, the outlook sees higher growth for services (2024F: +5.5%; 2024F previous: +5.6%; 2023: +5.3%), manufacturing (2024F: +3.5%; 2024F previous: +4.2%; 2023: +0.7%), mining (2024F: +3.5%; 2024F previous: +2.7%; 2023: +1.0%) and construction (2024F: +6.7%; 2024F previous: +6.8%; 2023: +6.1%) as agriculture is expected to shrink (2024F: -0.5%; 2024F previous: +1.2%; 2023: +0.7%).
Growth outlook is subject to downside risks such as weaker than expected external demand and commodity output as well as escalation in geopolitical conflict.
Upsides would be stronger than expected tech upcycle and tourism activity as well as faster implementation of new and existing investment projects.
Inflation forecast range tweaked
The 2024 inflation rate forecast is tweaked to +2.0% to +3.5% from +2.1% to +3.6% previously (2023: +2.5%) which keeps the 1.5 percentage points forecast range amid the upside risk from subsidy rationalization – especially fuel subsidy where details on timing and quantum remains a “black box”.
There will also be inflation impact from Budget 2024’s consumption-related tax measures e.g. broadening of services tax base and rate (to 6%-8% range from 6%); introduction of low value and high value (luxury) goods.
Other inflation risks include exchange rate volatility (i.e. -5% fall of Ringgit vs USD adds 0.2ppt to core inflation rate over 12 months period; 26% of domestic consumption are imported) as well as higher than expected global commodity prices due to geopolitical and weather/climate risks – although global commodity prices can be softer due to weaker than expected global economic growth.
BNM expects core inflation rate of between +2.0% and +3.0% this year (2023: +3.0%) BNM sees gradually firmer Ringgit BNM reiterates that Ringgit is undervalued in relation to fundamentals (e.g. sustained current account surplus – 2024F: +1.8% to +2.8% of GDP; 2023: +1.2% of GDP) and growth prospects (as per above), and its performance has been affected and influenced by external and cyclical factors such as interest rate differentials, global growth fluctuations and investors sentiments.
BNM foresees gradual improvement in Ringgit this year on factors like expected US Fed’s interest rate cuts plus Ringgits supportive measures like repatriation and conversion of overseas income by Government-linked companies (GLCs) and Government-linked investment companies (GLICs) as well as structural reforms (re: BNM Monetary Policy, 7 Mar 2024).
Caveat to the prospect of firmer Ringgit are downside risks from shifting expectations on US Fed’s monetary policy, weaker than expected China’s economy and commodity prices.
