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Maybank IB: 2024 to be ‘take-off’ year for Malaysia’s economic transition, with GDP growth at 4.4%

KUALA LUMPUR (Jan 2): The year 2024 should be a “take-off” year for Malaysia’s medium- to long-term economic transition outlined in last year’s blueprints, masterplans, road maps and legislations, with the economy growth expected to be firmer at 4.4% this year, Maybank Investment Bank (Maybank IB) said. 
It said these include the Madani Economy, National Energy Transition Roadmap (NETR), New Industrial Master Plan (NIMP 2030), 12th Malaysia Plan Mid-Term Review, Hydrogen Economy and Technology Roadmap, Fiscal Responsibility Act (FRA) as well as Energy Efficiency and Conservation Act.
On the country’s economic growth, the research firm said the growth would be underpinned by resilient consumer spending, sustained private and infrastructure investment momentum, plus recoveries in trade-related services and manufacturing industries, namely tourism and electronics.
“Fiscal reforms and economic restructuring will be high on the agenda. The key element of fiscal reform in 2024 is targeted fuel subsidy rationalisation, while the main item under economic restructuring is the Progressive Wage Policy to address the cost of living, adequacy of retirement savings and equality issues,” it said in a note on Tuesday. 
It also said the recent Cabinet reshuffle, next general election in four years’ time, sub-2% monthly inflation rate currently, and fiscal consolidation targets legislated by the FRA are the “carrots and sticks” to execute and implement.
“The exact details of the timing and mechanics of targeted fuel subsidy rationalisation are still pending, but we need to see strict enforcement to address serious diesel subsidy leakage, the roll-out of the Central Database Hub (Padu) to ‘means-testing’ eligibility for targeted RON95 subsidies, and gradual adjustments to fuel prices to mitigate the impact on inflation,” it said.
It expects a slight inflation uptick in 2024 amid gradual adjustments to subsidy rationalisation measures to mitigate the impact on inflation, with inflation to re-accelerate to 3.0% in 2024, compared with 2.6% last year.
“Consequently, we expect Bank Negara Malaysia to keep the overnight policy rate at 3% in 2024, despite the expectations for interest rate cuts in major advanced economies and regional peers, which is expected to be positive for the ringgit versus the US dollar,” it said. 
Maybank IB has projected the local note to appreciate towards the 4.40 level against the greenback by the end of 2024.
“For equities, the tail end of global monetary policy tightening is a tailwind, while the stable domestic interest rate policy outlook, economic transformation via the NETR and NIMP 2023, and rising foreign direct investment momentum are the key catalysts,” it said. 
It also looks forward to better corporate earnings growth in 2024, while maintaining its 2024 FBM KLCI target of 1,610 points.
“For investment strategy, we recommend a portfolio of selective trade-related and domestic sectors, balanced with yield and enviromental, social and governance stocks,” it said. 
Globally, it expects global real gross domestic product growth to slow to 2.8% this year, as the US economy ‘soft lands’ on factors like household excess savings and a resilient job market supporting consumer spending, supply-side or industrial policies lifting US manufacturing investment, and expansionary fiscal policy negating the Federal Reserve’s interest rate hikes.
Meanwhile, key risks include higher-for-longer US interest rates, widening of the US-China geopolitical rivalry, escalations in Russian-Ukraine war and Middle East instability due to Israel-Hamas war, as well as China’s real estate sector flaring up and souring financial or capital market sentiment, it added.
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Source: EdgeProp.my

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