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中国台湾省Domestic demand to remain the main growth driver
Following a sharp deceleration in 2023, the Malaysian economy is set to slightly pick up in 2024. This will be explained by a resilient private demand. Household consumption (58% of GDP) will remain robust amid a stable and low unemployment rate (3.3% in January 2024) and public measures to offset the effect of inflation on low and middle-income consumers, who are more price sensitive. Households will also enjoy stable monetary policy, with Bank Negara Malaysia expected to keep its policy rate at 3%, a level close to albeit below its pre-pandemic average (2015-19). The central bank is unlikely to make further rate hikes as the export-dependent economy is still facing fragile foreign demand, and depreciation pressures on the Malaysian ringgit will decrease amid monetary policy easing in the main advanced economies. However, the bank may decide not to cut its policy rate in light of rising inflation. Robust private consumption, the planned transition from blanket to targeted subsidies (notably on fuel) and the removal of the egg price cap, as well as the rise in the service tax rate (from 6% to 8% from March 2024 for most services) should drive inflation. That said, the extent of faster inflation is, however, difficult to assess given uncertainty surrounding these fiscal measures, notably the targeted fuel subsidies (amount and timing). Meanwhile, private investment should also prove to be robust as suggested by the rise in approved private sector investment in 2023 (+23% from 2022). Exports, which narrowed by 8% in 2023, might benefit from signs of recovery in the technology industry (40% of exports), although they would remain marred by slowing economic growth in China (14% exports). Services exports are set to perform better than goods thanks to the continued recovery in tourism (11.7% of GDP in 2019 vs. approximately 8% in 2023). The country has offered visa-free entry to different nationalities since December 2023, including to the Chinese. China’s citizens accounted for 11.9% of international tourists in Malaysia in 2019, the third-largest source after Singaporeans and Indonesians. Public investment will continue to support economic activity. The transportation sector will benefit from this with higher expenditure for transport infrastructures including the ongoing building of the Pan Borneo Highway and the East Coast Rail Link train line.
Consolidating fiscal policy
The fiscal consolidation initiated in 2023 will continue in 2024. In its budget, the government expects the fiscal deficit to narrow. Despite faster economic growth, tax rates hikes (service tax and excise duties on sugar-sweetened beverages), as well as the introduction of new taxes including those on luxury goods and capital gains, a lower dividend from national petroleum company Petronas (which generates most of the petroleum-related public revenue) will result in an only slight increase in revenue. Meanwhile, marginal public expenditure cuts are likely (-0.8% from 2023) with lower subsidy allocation on back of the implementation of targeted subsidies and the absence of debt obligations related to state fund 1Malaysia Development Berhad (1MDB). Fiscal consolidation is expected to stabilise the public debt load, which is almost exclusively denominated in local currency (97%) and long term in nature.
Private indebtedness, including that of Malaysian households, is more worrisome. That said, banking-sector risks would appear limited. The country’s banks post adequate liquidity buffers and capitalisation rates. In addition, the share of household loans with deteriorating credit risk declined from 6.7% in December 2022 to 4.6% in June 2023.
The current account surplus narrowed in 2023 due to a reduced balance of goods surplus, after reaching an all-time high in 2022. The current account surplus is expected to increase in 2024. The balance of goods is set to improve with the recovery – albeit limited – in exports. However, despite a higher number of foreign visitors resulting in the travel service balance returning to surplus in 2023 (0.9% of GDP), the overall deficit of services could increase with higher transportation costs due to expanding foreign trade and costlier sea freight due to trade disruptions in the Red Sea and the Gulf of Aden. In addition, a larger primary account deficit on back of profit repatriation amid dynamic foreign investment inflows will continue to weigh on the current account surplus. The latter, alongside foreign direct investment, will keep fuelling international reserves and should therefore remain adequate, covering 5.4 months of imports, which is sufficient to repay short-term external debt (42% of total external debt) as of February 2024. Although the external debt, which is overwhelmingly private, increased from an already hefty level of 63.9% of GDP in 2022 to 68.2% in 2023, it still remains manageable as it is mainly denominated in Malaysian ringgit and accounts for a limited share (3.8%) of 2023 FDI inflows.
Anwar treads a fine line
After the 2022 general elections, which led to a highly fragmented Parliament, the two coalitions Pakatan Harapan (PH) and Barisan Nasional (BN) agreed to form a government at the previous king’s insistence. PH’s leader and long-time leader of the opposition, Anwar Ibrahim, was appointed as Prime Minister (PM). This alliance enables him to secure half of the lower house of Parliament’s seats (111 out of 222). Other smaller coalitions and parties subsequently joined the coalition, enabling Anwar to win a vote of confidence in December 2022. The opposition is composed of the Islamic Party (PAS) and some members of the nationalist BERSATU party. However, such a disparate group (in terms of political ideology and ethnicity) may thwart Anwar’s ability to instigate reforms and jeopardise his chances of remaining Prime Minister. In addition, his commitment to fighting corruption has been questioned following two judicial measures relating to corruption convictions imposed on two prominent members of UMNO, the main party of the BN coalition, with which he governs. Former PM Najib Razak’s prison sentence was halved, while the High Court issued a "discharge not amounting to acquittal" to the former deputy PM Ahmad Zahid Hamidi in September 2023. One year after he assumed office, his approval rating dipped to 50% in November 2023, from 68% in December of the previous year.
On the external front, the country has remained neutral regarding US-China rivalry given both countries’ importance to its economy (trade and investment). Malaysia is one of the countries benefitting from the tensions, attracting investment from China and the West in its technology sector. Meanwhile, the country’s relationships with the EU have further cooled since the introduction of the European Union’s Deforestation Regulation in April 2023, which aims to prevent goods sold in the EU that have resulted from deforestation. By threatening Malaysia’s palm oil exports, its main agricultural commodity – and for which the EU is the second export market – the country considered the rule to be discriminatory. In 2021, Malaysia filed a complaint with the WTO against the EU relating to different measures concerning palm oil and palm oil-based biofuels. While the international trade body found faults with the EU’s rules, it backed the Union’s decision to impose rules against using palm oil as a biofuel due to emissions risks.
As more than 60% of its population is Muslim, Malaysia does not have diplomatic ties with Israel and advocates a two-state solution to the Israel-Palestine conflict. As a response to the war in Gaza, Malaysia announced in December 2023 that Israel-flagged cargo ships would banned from docking in its ports.
