PETALING JAYA: Experts are primarily upbeat about the prospects of Malaysia’s overall economic growth in the last quarter (4Q24), highlighted by the recent strengthening of the ringgit, with MIDF Research believing the local note could dip below RM4 against the dollar next year.
The research house forecasts the ringgit to hit RM4.03 to the greenback by year-end, noting that the FBM KLCI has also shown steadier growth in comparison to its Asean peers.
“We opine that this is due to the early start that the FBM KLCI had, whereby it did not suffer the malaise in 2Q24.
“Nevertheless, the FBM KLCI also did benefit from a turn in sentiment towards positivity, seeing a respectable 5.2% quarter-on-quarter gain as of Sept 25 in 3Q24, resulting in the index registering a double-digit gain thus far this year,” it said.
The strong showing of the premier index, in line with global markets, was also undoubtedly propelled by the giant 50 basis-point (bps) cut in the US Federal Reserve’s (Fed) Federal Funds Rate last week.
MIDF Research pointed out that markets now perceive a shift in the Fed’s monetary policy, with the possibility of another 50 bps reduction by year-end.
On local factors that contribute to the bright outlook, Sunway University professor of economics Dr Yeah Kim Leng said the stability of the current administration and the economy is on a strengthening path, as evidenced by various key economic indicators.
“Importantly, foreign portfolio and direct investors are giving the thumbs up by pouring investments into the country, leading to an 18% year-on-year rise in approved investments in the first half of this year,” he told StarBiz.
Besides political stability, he said investors are also buoyed by the medium- to long-term vision, economic policies and strategies encapsulated in the various master plans and sectoral blueprints rolled out by the unity government over the past two years.
“Economy-wide structural reforms and targeted growth initiatives, such as the Johor-Singapore Special Economic Zone and special incentives for the Forest City development are also stoking investor confidence that has spurred large capital inflows,” he added.
UOB Global Economics and Markets Research senior economist Julia Goh concurred, as she opines that the economy is on the right track in terms of growth outlook, fiscal reforms and various initiatives undertaken to establish new growth drivers and improve execution.
She noted that recent discussions with foreign asset managers have revealed their increased interest and willingness to participate in the country’s renewed growth story.
On the other hand, Yeah highlighted that the ringgit’s appreciation is partly a market reaction to the start of the US interest-rate cut cycle, with MIDF Research separately predicting the local currency to hover around the 4.15 mark against the dollar in 2025.
Offering a more balanced view, Goh said while macroeconomic factors and outlook support the ringgit’s strength, a degree of caution should be applied in extrapolating the trend in the near term.
“This is given external risk events including the United States elections in November, the quantum of the Fed’s rate cuts over the next few meetings and downside risks to China’s economy even with the recent stimulus measures,” the economist told StarBiz.
She has updated her fair value forecast for the ringgit in 2025 to 3.90 against the dollar, premised on further Fed cuts and the continuation of structural reforms in Malaysia.
Over the longer term, Sunway University’s Yeah said other favourable fundamental factors such as sa tronger-than-expected economic and export growth, subdued inflation, pro-growth structural reform policies and stable monetary policy are the more enduring dynamics that will sustain investor confidence.
With Budget 2025 set to be unveiled in just three weeks, the veteran economist expects the government to continue its subsidy rationalisation to reduce fiscal burden and reallocate resources toward more productive spending.
“In particular, we should see public funds being channelled into areas with greater development and multiplier effects, such as healthcare, skills upgrading and better infrastructure and amenities for underdeveloped areas,” he said.
Yeah emphasised that rationalising subsidies will strengthen the government’s fiscal position, facilitating a gradual reduction in fiscal deficit and debt levels, which will further enhance investor confidence in the country’s growth prospects and resilience.
Nouri Chatillon, Asia-Pacific economist at Coface, agreed, stressing that Budget 2025 will likely shift from general to targeted subsidies, similar to last year.
“From the foreign investors’ point of view , fiscal consolidation could be a good thing, as it reinforces the country’s macroeconomic stability, provided it does not involve raising taxes,” he noted.
For 4Q24, Yeah projected that the digital and green economy sectors, including electric vehicles, data centres and renewables, are poised for faster growth, due mainly to rapid capacity expansion and the introduction of new products and services.
Notably, HSBC Global Research’s Asean economist Yun Liu recently raised her gross domestic product growth estimate for 2024 from 4.5% to 5%, citing the manufacturing sector is benefitting from the global tech upturn.
According to her, the construction sector is benefitting from increased foreign investments in large-scale projects, such as data centres. The tourism industry’s revival is also on track, she added.
Looking ahead ideally, economist and assistant research manager at IDEAS Malaysia Doris Liew told StarBiz that it is essential for Malaysia to leverage on the momentum in manufacturing to boost complementary sectors, such as agritech and the food industry, especially to promote economic diversification and value-added activities.
In addition, she said strengthening global business services to support new firms entering Malaysia would also create new areas of growth outside of the manufacturing sector.
