KUALA LUMPUR (Dec 7): With Prime Minister Datuk Seri Anwar Ibrahim’s unity government hitting the one-year mark, 2024 will be the time for stakeholders to closely monitor Putrajaya’s execution of promised reforms, according to Socio-Economic Research Centre executive director Lee Heng Guie.
Lee called 2023 a year of transition for the unity government, whereby it set its direction via its various policy frameworks — including the Madani economic framework, New Industrial Master Plan 2030, National Energy Transition Roadmap, and 12th Malaysia Plan (2021-2025) Mid-Term Review.
“[The unity government] are going to have a three-day celebration to mark their one-year milestone. Next year [there is] no more honeymoon. Next year is a year for us to monitor and track the delivery of their promised reforms and policy setting,” he said during the CEO Series 2023 (Economy & Business Forum) on Thursday.
Setting realistic expectations, Lee noted that investors, businesses and consumers are not expecting the government to deliver on 100% of their promised reforms, but stressed that the government must work towards a future-proof Malaysia before the next general election in 2027.
“I believe next year to be a year of painful adjustment for everyone, it will come in a gradual form because the external backdrop still looks very uncertain. It will be gradual and sequential so that the government can manage the impact on the businesses and consumers,” he added.
According to Lee, one of these reforms comes in the form of the government’s intention to review price controls and subsidies in 2024, which will affect inflation and demand conditions.
Lee forecast that the Malaysian economy will expand by 4.5% in 2024.
'Moderate probability' of US recession in the backdrop
Lee said the continued risk of a US recession contributes to the uncertain external backdrop Malaysia will have to operate next year, which he described to have a “moderate probability”.
This fear of a US recession extends back to end-2022, when markets were forecasting the US economic downturn to cause a global slowdown in 2023.
However, Lee noted that the global economy continued to surprise investors at large in 2023 with its continued growth, and the US in particular, with it defying the aforesaid recession fears.
“I think that next year will be a year of reckoning, because the investors, government, market will begin to digest the implications from the current year’s policy periods in the markets,” he added.
Other risks to the global economy are a slowdown in China due to the troubles in its property market, and uncertainty in the direction of global interest rate.
“In particular, the US rates have peaked, but the next question is when is it time to cut rates and by how much," he said.
“When they start to cut rates it may signal some concern of the US economy starting to slow, we have already seen some data that has shown some weakness in the US property market,” he added, noting he expects the US Federal Reserve to start their rate cuts in 2Q2024 to 3Q2024.
Furthermore, Lee noted that some economic catalysts are to unwind in the US next year, starting with the US households' pandemic savings possibly running out in 1Q2024, while student loans have already resumed being serviced in October this year.
“Next year is also the year when the impact of the high-interest rates will start to be felt in the US economy and we will start to see the mortgage market somewhat impacted by the high-interest rate,” he added.