KUALA LUMPUR (Jan 16): The Malaysian economy, as measured by the gross domestic product (GDP), is expected to grow by 4.8% in 2024, higher compared with a forecast of 4.3% in 2023, according to Standard Chartered (StanChart) Global Research.

However, on a quarter-on-quarter basis, StanChart expects 2024 growth to be softer than in 2023. 

While domestic demand is likely to continue to be a key growth driver, StanChart chief economist for Asean and South Asia Edward Lee said consumer spending is expected to slow in 2024 due to the anticipated subsidies removal. 

"Consumer spending may slow, even as it remains the primary growth driver in 2024... Nominal wage growth eased to 3.4% year-on-year in the third quarter [of 2023], the lowest since the end of 2021. The gradual removal of subsidies in 2024 may further dampen spending," Lee said during a press briefing on StanChart's 1H 2024 Global & Malaysia Outlook on Tuesday. 

Besides consumer spending, Lee highlighted that other supportive factors to the growth of the Malaysian economy includes the tourism sector, which "still has a lot to recover", and public infrastructure, which has seen a record high government allocation of RM90 billion for development expenditure under Budget 2024.

"The public sector may lead investment growth amid the ongoing implementation of key infrastructure projects, including the East Coast Rail Link and MyDIGITAL 5G projects.

"Meanwhile, private sector investment may be soft in the first half of 2024 on higher funding costs. Foreign direct investments (FDI) into Malaysia fell 49% year-on-year in the first nine months of 2023. High global interest rates may continue to weigh on FDI inflows, especially in the first half [of 2024]," Lee said. 

On the other hand, Lee said that external demand could face challenges from the tight global monetary policy and subdued growth in China. However, Lee foresees that the bottoming of the electronics cycle could provide some relief.

"Having said that, Malaysia's exports are well diversified across both markets and products, which should continue to mitigate the drag from weak exports," he added. 

On the inflation front, StanChart expects core inflation to remain benign and for Bank Negara Malaysia (BNM) to maintain the overnight policy rate (OPR) at 3% throughout 2024. The bank forecasts headline inflation to moderate to 2.5% in 2024 from 2.7% in 2023, while core inflation to decline to 2% in 2024 from 3% in 2023. 

"At this level, it seems that the central bank views the monetary policy stance as supportive of growth, which is likely to slow in the first half of 2024. 

"Overall, I think inflation is not a problem," Lee concluded, although he acknowledged that StanChart's forecasts on inflation have incorporated any possible change to fuel subsidies. 

As a whole, Malaysia's economy is expected to remain steady in 2024 amidst global uncertainties, as StanChart expects global GDP growth to slow marginally to 2.9% in 2024 from 3.1% in 2023.

StanChart anticipates that the world economy may be able to achieve a soft landing after the most aggressive monetary tightening cycle in years. In contrast, Asia's GDP growth should slow only slightly to 4.9%, despite expectations that China's growth will remain lacklustre.

However, global inflation and geopolitics will continue to pose the biggest threats.