A year of weak ringgit and economic headwinds, will Malaysia stand pat in 2024?

The past year has been a turbulent 12 months with numerous economic challenges all over the world.

But most of the economic headwinds mainly originated from the US was not Malaysia's fault as the world reeled from the purported threats of de-dollarisation.

Second tier economies such as Brazil, Russia, India and China or more popularly known as BRICS have had enough of the volatile US economy pledging to dump the US dollar and use their currencies instead to facilitate global trade.

At the home front, the ringgit continues with it's downward spiral mainly due to the political wranglings among the country's politicians.

It is only now that the ringgit has stabilised somewhat due to the country's strong economic fundamentsls.

Malaysia to stand pat in 2024?

Despite a yo-yoing US economy, Malaysia continues to stand steadfast and resilient against the economic headwinds.

Samirul Ariff Othman said Malayia's economic performance next year is expected to be in line with the official forecasts of Budget 2024 for Malaysia's rangebound between 4-5 percent.

"There is surely continued optimism on the domestic front, especially with regards to aggregate consumption and public investment.

However there are also concerns of downside risks, associated with confluence of both economic and non economic forces,"  said Samirul who is senior consultant at Global Asia Consulting.

Ukraine and Gaza wars continue to loom

The year 2024 will continue to tread cautiously as the Ukraine-Russia war and Israel-Gaza continue to loom their ugly heads.

Most importantly the on-going war in Ukraine and also in Gaza, of which especially the latter could possibly protract and worsen to become like other previous wars destabilizing world oil price and exacerbating supply disruptions.

"Geostrategic competition and economic fragmentation would in turn surely add to the cautious optimism on the external front next year," Samirul told Dagangnews.

Samirul who was former senior researcher at the Malaysian Institute of Economic Research added as such, strong or robust growth is the likely scenario for Malaysia with a minimum growth of 4 percent barring unforeseen circumstances such as the emergence of new COVID-19 variants.

Public sector to drive investments

For 2024, public investments are also expected to contribute significantly to growth while private investments are expected to gain from positive externalities, associated with continued accomodative monetary policy and spillovers from public sector projects and programs. 

Public investments will hopefully help to spur growth, provided there are enough safeguards to ensure smooth implementation and avoid unneccessary leakages and delays. 

"Primary balance is necessary to ensure decumulation, instead of accumulation of debts.

Primary balance needs to be in the surplus in the medium and long term to ensure outstanding debt reduction. 

Debt sustanability requires fiscal prudence and accountability, coupled with good fiscal rules and greater fiscal transparency, said Samirul.

The Fiscal Responsibility Act indicates we are on the right path of genuine fiscal consolidation path.

Meanwhile, Dr Mohd Afzanizam Abdul Rashid said Malaysia's gross domestic forecast for 2024 stands at 4.3 percent from an estimated 3.8 percent in 2023. 

"The main driver for the economy next year will continue to be from domestic demand. 

Higher development expenditure totaling RM90 billion along with the stable labour market are the key underpinning factors," said Afzanizam who is Bank Muamalat Mslaysia chief economist and social finance head.

Afzanizam added expansionary fiscal and accommodative monetary policies are expected to underpin the domestic economic activities.

US economy holds the key

Like it or not, the US will be the determining factor next year on global economic direction affecting other countries.

The key challenges for next year would be from the external environment such as the global slowdown following the restrictive monetary policies adopted in the past two years. 

"The main focus would be on whether the US Federal Reserve will cut the interest rate next year and how quick and how low the Fed Fund Rate would react," said Afzanizam.

China's property market may affect global economy?

Concern over China’s property market will also be one of the key areas to look at as the authorities are likely to prescribe further economic stimulus to support the economy.

Fuel subsidies adjustment to impact inflation

Next year, the government could finally impose the fuel subsidy rationalisation to targeted groups.

Key domestic policy would be the fuel subsidy rationalisation especially on the quantum of the adjustment and the impact it may have on inflation.

The subsidy savings of around RM100 billion could help the government a long way to bolster other areas of the domestic economy.

These include cash aids, micro loans for small and medium scale enterprises which would bolster the domestic economy and cushion the country from the volatile global economic conditions. - DagangNews.com