KUALA LUMPUR (Jan 11): The Malaysian economy would find its way up and probably outperform expectations and 2024 gross domestic product (GDP) could grow by 4.8% or even reach 5.0%, according to think tank KSI Strategic Institute for Asia Pacific.

In a regional report on Thursday, KSI economic adviser Dr Anthony Dass said rising real incomes would be one key driver.

He said cooling inflation to settle at 2.6% in 2024 would improve households’ wallets.

“Fuel subsidy rationalisation and the adjustment in fuel prices would be gradual to mitigate the impact on inflation.

“Labour market to remain resilient from favourable business sentiments. The unemployment rate should be around 3.3%. Real wage growth would be around 2.5%-3.5%,” said Dass.

Dass said the gig economy's popularity is rising.

“Strong momentum is due to growing digitalisation and connectivity in Malaysia.

“Widespread use of smartphones and the availability of high-speed internet have made it easier for individuals to access gig platforms and businesses to leverage gig workers.

“About 40% of the workforce and 25% of the labour force are in this sector,” he said.

Dass said interest rates are expected to remain stable in 2024 and remain above the inflation rate.

“Overnight policy rate (OPR) would be at 3%. And there is unlikely any indication towards lowering the interest rate in 2024 as the ringgit should strengthen against the US dollar and provide some cushion on import costs.

“That means savers will be rewarded for their prudence. They earn positive real returns. Borrowers need to carefully weigh capital costs,” he said.

Dass said investors’ confidence regained following the conclusion of state elections.

“Malaysia is on the radar screen from the reversing cyclical downturn of the ICT/semiconductor powered by AI chips, the end of the inventory correction and the increase in government incentives.

“It would benefit from the New Asian Tigers — Japan, South Korea and Singapore — [and] stand to benefit from shifting geopolitics and domestic catalysts. The semiconductor industry rebound will propel the Malaysian economy,” he said.

Dass said Malaysian banks had one of the highest proportions of credit exposure to the real estate sector in Asia-Pacific, with the mortgages, property and construction sectors accounting for just over half of total loans.

However, he said the financial institution handled interest-rate risks well.

"Liquidity conditions have eased. The banks are unlikely to face difficulties in accessing deposit and wholesale funding. Stable interest rates and a healthy economy would keep the real estate market favourable.

“Strong financing conditions would continue to support GDP. Loan growth would be around 5% in 2024.

“GDP growth is projected at 4.4% in 2023 and 4.8% in 2024. Bank Negara Malaysia (BNM) is expected to maintain the OPR at 3% in 2024 and 2025,” he said.

Dass said gradual appreciation of the ringgit against the US dollar, reducing interest rate differential, stable inflation environment and sustained economic growth would provide breathing space for BNM to maintain the policy rate at 3%.