KUALA LUMPUR (Sept 19): Malaysia’s RM160 billion approved investments in the first half of 2024 (1H 2024), comprising RM85.4 billion in domestic investments (DI) and RM74.6 billion in foreign investments (FI), showed that the country is not overly dependent on FI to stimulate its economy.
Malaysian Institute of Economic Research (MIER) executive director Dr Anthony Dass said that the services sector contributed RM97.2 billion and manufacturing RM60.1 billion to the 1H’s impressive performance, alongside improvements in the ratio of domestic to foreign investments.
“So this tells us that we are not overly relying on foreign investment to drive this economy.
“Going forward, looking at the Madani Economic Framework, Malaysia should potentially receive more exporters due to the way the DI is moving now.
“This is compared with a few years back, when I felt that FI was taking the leading role compared to the DI. Today, the ratio has changed, and with this kind of approval numbers coming in, we are looking at about 80,000 new jobs,” he said in a presentation titled ‘Cautious, Optimism’ held during the Malaysian Investment Development Authority (MIDA) and MIER memorandum of agreement (MoA) exchange event here Thursday.
Dass said several national master plans, such as the New Industrial Master Plan 2030 (NIMP 2030) and National Energy Transition Roadmap (NETR), will lead to investment realisation over several years, providing continuous positive spillovers to the economy moving forward.
He said private investment taking shape is one of the key indicators supporting the economic growth for the second half of this year, apart from sustained consumer spending, sustained growth, export momentum, reforms raising confidence and expectations that the ringgit will continue to outperform.
Meanwhile, Dass opined that consumer spending, which makes up about 60 per cent of the gross domestic product (GDP), would continue to support this year’s economic growth.
“The labour market is fairly stable, with unemployment rates decreasing and government benefits supporting the salary adjustments.
“Importantly, inflation is also slowing down, creating a cooling effect despite the decent subsidy and various reforms.
“Inflation is still coming off decently well, and at MIER, we anticipate it will settle around three per cent. As a result, the overnight policy rate is expected to remain at three per cent,” he said.
Dass said that confidence is picking up and Malaysia’s image has significantly improved, where, based on the Business Confidence Survey, more than 70 per cent of companies responded they are very optimistic.
He said that due to reforms, MIER is expecting the equity market to pick up in the second half of this year.
Regarding the ringgit’s performance, he said the local note is expected to continue to outperform after a long period of being undervalued.
He said despite currently being undervalued, indicators like the nominal effective exchange rate (NEER) and real effective exchange rate (REER) suggest the ringgit’s fair value lies between RM3.90 and RM4.20 against the US dollar.
“The key drivers for the ringgit will be the narrowing of the interest rate differential. This year, I anticipate a cut of about 100 basis points. If the Fed implements this cut, we should see the interest rate differential to 125-150 basis points.
“Additionally, the ringgit is supported by fiscal reforms, foreign investment inflows, and investment realisation, which we estimate to be around 80 per cent (investment realisation),” he said.
He added that the ringgit is attracting attention from portfolio investors, not just in bonds but also in equities, thanks to a stable and stable political environment.
According to Dass, MIER anticipates Malaysia’s GDP growth to surpass five per cent this year, with inflation projected at three per cent.
He said inflation should be coming off a bit low next year because the only impact left is the RON95 fuel subsidy rationalisation.
Uploaded by Lam Seng Fatt