Spending and investments to drive growth this year

Consumer spending is expected to drive economic growth this year, apart from infrastructure investment.

KUALA LUMPUR: Resilient consumer spending and sustained private and infrastructure investments are expected to drive economic growth in Malaysia this year.

According to Maybank Investment Bank (Maybank IB), other factors that will help to boost economic expansion are recoveries in trade-related services such as tourism and manufacturing industries, especially electronics.

Among others, it said in a note today, fiscal reforms and economic restructuring will be high on the agenda.

The key element in the fiscal reforms is targeted fuel subsidy rationalisation, while the progressive wage policy (PWP) will drive economic restructuring to address the cost of living, adequacy of retirement and savings and equality issues, Maybank IB said.

The investment bank said there could be a slight uptick in inflation in 2024 amid the gradual adjustments in subsidy rationalisation measures.

It expects inflation to rise to 3% in 2024 from 2.6% in 2023.

Maybank IB also expects Bank Negara Malaysia (BNM) to hold the overnight policy rate (OPR) at 3% this year despite the possibility of interest rate cuts in major advanced economies and regional peers.

“This is expected to be positive for the ringgit versus the US dollar,” it said.

It expects the ringgit to appreciate to the 4.40 level by the end of this year.

The investment bank said this will be the year when the various economic blueprints, masterplans, roadmaps and legislations “take off”.

These are the Madani Economy, National Energy Transition Roadmap (NETR), New Industrial Master Plan (NIMP2030), 12th Malaysia Plan Mid-Term Review (12MP MTR), Hydrogen Economy and Technology Roadmap (HETR), Fiscal Responsibility Act (FRA) and Energy Efficiency and Conservation Act (EECA).

Maybank IB said the global monetary tightening would serve as a tailwind for equities while stable domestic interest rate, economic transformation via the NETR and NIMP2030 and rising foreign direct investments (FDIs) would be the key catalysts.

It also expects corporate earnings growth to improve in 2024 and it is maintaining its FTSE Bursa Malaysia KLCI target of 1,610 points.

For investors, it is recommending a portfolio of selective trade-related and domestic sectors balanced with yield and environmental, social and governance (ESG) stocks.

However, it expects the global gross domestic product (GDP) growth to be slower at 2.8% as the US economy sees a soft landing on factors such as household excess savings and a resilient job market supporting consumer spending and other factors negating the Federal Reserve’s interest rate hikes.

Among the risk factors are a “higher-for-longer” US interest rate, widening of the US-China geopolitical rivalry, escalation in the Russian-Ukraine war and instability in the Middle East led by the Israel-Hamas conflict.

It added that a flare-up in China’s real estate and the sourcing of financial or capital market sentiments could also dampen sentiments.

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