2024 economic outlook

AFTER a rocky 2023 filled with inflationary expectations, OPR hikes and a depreciating ringgit, Malaysians are eager to enter 2024 stronger economically. Drawing upon data and expert forecasts, Malaysia’s economic prospects for 2024 are optimistic. 

Following a 3.3% GDP growth in the third quarter, Bank Negara Malaysia forecasted GDP growth for 2024 to range from 4-5%. Last year’s growth was supported by resilient domestic demand in both the private and public sectors. For example, tourism arrivals reached 70% of pre-pandemic levels, driven mainly by regional tourists from Singapore, Indonesia and Thailand. With Q3’s tourism receipts at 88% of the 2019 quarterly average, the industry is on track to return to pre-pandemic levels. 2024’s growth will likely be strengthened by progress on national infrastructure projects like the RM 50 billion East Coast Rail Line. However, predicted growth numbers are subject to exogenous factors such as geopolitical tensions in Ukraine and Palestine, which could serve to slow down the recovery of external demand and heighten commodity prices. 

Labour markets are improving as well with unemployment declining to 3.4%, trending towards pre-pandemic levels. The size of the labour force has also risen 2.7% to 16.3 million persons, marking a labour force participation rate of 69.9%. Improvements in productivity and opportunity have led overall salaries and wages to rise by an expected 4.4% to an average of RM 3,355 in 2023. Upon announcement of the progressive model towards the end of last year, 1000 companies are also planned to be involved in a dry run of the progressive model from June to September 2024. The plan is sponsored by the government and is on an opt-in basis. The government has also set out to rework vocational TVET programmes to fit market needs under the NIMP 2030. Meanwhile, opportunities in high-growth high-value (HGHV) green and energy sectors are optimistic due to progress on the flagship projects under the NETR. 

Last year marked one of the ringgit’s worst years, with historic lows against the United States and Singapore dollars. This was the result of continual rate hikes by the Fed. Additionally, the Chinese renminbi, to which the ringgit has correlated performance, saw a downtrend throughout 2023 due to lacklustre economic recovery in China. For 2024, it is hoped that Malaysia’s economic fundamentals, the Fed’s stabilisation in rates and improved growth in China will bolster the ringgit. Notably, amidst the ringgit’s fluctuations, keeping the ringgit on a float is a wise choice, allowing the market mechanism to determine the appropriate value of our currency in line with changing conditions and external demand. 

After passing the Fiscal Responsibility Act in October 2023, the government has put priority on fiscal consolidation. The RAM Group has estimated the fiscal deficit to be 5.0% of GDP in 2023, falling to 4.2% in 2024. This year will see the implementation of many taxes such as the low-value goods, luxury and capital gains taxes, increasing government receipts. Prospectively, reverting back to GST in 2025 could stand to increase tax receipts by expanding the tax base. Government plans for the phased rationalisation of blanket subsidies on petrol which cost RM 52 billion (2.9% of GDP) in 2022 will also lessen our fiscal deficit.

Much of the talk in 2023 surrounded inflation, with the CPI increasing 2.8% from January to August 2023. The Finance Ministry has projected inflation in 2024 to lie between 2.1% and 3.6%. Inflation remains determinant on domestic policy and other external factors. Worsening geopolitical conflict could see commodity prices rise and adverse weather could cause food prices to increase. Rahmah initiatives in Budget 2024 are hoped to ease inflationary pressures associated with the gradual removal of blanket subsidies and price ceilings. 

In terms of policy recommendations, for stronger long-term economic health, Malaysia should move towards an investment-focused growth model instead of our current consumption-focused model. Although FDI inflows experienced a substantial increase in 2022, our neighbours Brunei and Thailand still outpaced us in private investment as a percentage of GDP at 24.9% and 17.4% respectively (2022) while we stood at 15.0% for 2023. Strong implementation of NETR and NIMP 2030 will surely bolster investment expenditure. 

Closing out, many of the optimistic predictions are partially contingent on international relations and domestic affairs. The predictions are exactly what they are: predictions. Geopolitical tensions abroad stand to bring volatility to markets, disrupting external demand. Malaysia should continue negotiations on FTAs such as the Asean-Canada Free Trade Agreement to support export markets. Ultimately, with many fiscal reforms ahead, we can only put our focus domestically on our economic fundamentals, guiding Malaysia towards a prosperous 2024. – January 6, 2024.

* Chong Yoong Wen reads The Malaysian Insight.

* This is the opinion of the writer or publication and does not necessarily represent the views of The Malaysian Insight. Article may be edited for brevity and clarity.

Sign up or sign in here to comment.