Malaysia economy expected to grow 4-5% in 2024: Bank Negara

[KUALA LUMPUR] Malaysia’s central bank forecasts the country’s economy to grow between 4 and 5 per cent in 2024, but cautions that upcoming reforms may cause some short-term pain.

The growth forecast is supported by the resilient domestic demand and improvement in external demand, said Bank Negara Malaysia governor Abdul Rasheed Ghaffour on Wednesday (Mar 20).

“Our prospects are good. We have reason to cautiously anticipate a better year ahead. There is also a favourable window of opportunity to implement crucial structural reforms,” he told the media after the release of Bank Negara’s annual report for 2023.

He said the transition period of the reforms, which will involve the rationalisation of subsidies and the reduction of fiscal deficit, will be challenging, but “these reforms are investments for the future towards the prosperity of the country”.

“By taking decisive and collective actions, we can capitalise on Malaysia’s robust and resilient economic rebound post-Covid and lay the path for sustained growth and prosperity,” he added.

The governor said the Malaysian economy continued to show strength and resilience last year and achieved a gross domestic product growth of 3.7 per cent, despite the slowdown in the global economy and inflationary pressures domestically.

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“Downside risks include weaker-than-expected global growth, further escalation of geopolitical conflicts, and more severe shocks on commodity production due to extreme weather events,” he said.

The central bank also projected headline inflation to average between 2 and 3.5 per cent in 2024 amid contained cost pressures from easing global supply conditions.

In 2023, the country’s inflation eased to 2.5 per cent, from 3.3 per cent in the previous year.

“Inflation outlook remains highly subject to upside risks due to potential price adjustments on food and energy items, as well as external pressures from exchange rate and global commodity price developments,” said Abdul Rasheed.

While he anticipates that the subsidy rationalisation would affect the overall cost of living, especially for the lower-income groups, he said that this would not require monetary policy intervention.

“Monetary policy is a blunt tool to address the demand component in the economy. We will continue monitoring the data, whether there is an anchoring of inflation or demand pressures. Only such situations will require monetary policy interventions,” he said.

Malaysia has maintained its overnight policy rate at 3 per cent after a 25-basis-point hike in May 2023. Economists expect the central bank to keep the rates steady until the end of the year.

The governor reiterated that the current ringgit level is undervalued, given the country’s strong fundamentals, diversified economy and positive growth prospects.

He said the ringgit’s depreciation is in line with most emerging market currencies, mainly due to external factors as market participants adjusted their expectations for a higher-for-longer environment upon hawkish signalling by the US Federal Reserve.

In the year to date, the ringgit has depreciated more than 3 per cent against the US dollar to RM4.73 on Wednesday. Compared with the same period last year, the ringgit has fallen nearly 6 per cent against the greenback from RM4.48.

He said Bank Negara has been actively engaging with public and private companies to encourage more consistent repatriation and conversion of their foreign investment income into ringgit.

At the same time, the central bank is monitoring the trends of foreign currency holdings by Malaysian corporates, exporters and importers.

These actions are contributing to positive outcomes, he said, adding that the central bank has seen increased flows and market interest in buying the ringgit, but he declined to reveal the amount of inflows.

Looking ahead, financial markets expect the ringgit to appreciate further in 2024 and continue on an appreciating trend as the effects of global factors subside. Some analysts have projected further to 2025 and assess that the ringgit will continue strengthening.

Bank Negara’s annual report stated that the central bank’s financial position remained stable in 2023, with total assets amounting to RM631.26 billion (S$178.8 billion) as at Dec 31, 2023.

The central bank booked a net profit of RM7.16 billion for the year, of which RM4.31 billion had been transferred into its risk reserve. It declared a dividend of RM2.85 billion to the government for the financial year 2023.