Global economic growth is expected to sustain a moderate level in 2024. Growth forecasts for advanced European economies remain relatively stable despite lingering weaknesses. The strength of the US economy may moderate the pace of policy rate cuts, potentially leading to a less synchronised global monetary policy easing, compared to some central banks in Europe that have already begun reducing rates. Persistent mixed readings on inflation, especially in the US, have led to the paring down of expectations of interest rate cuts.

Sustained global growth has also been reflected in Asia’s regional trade activities, which rebounded strongly amid increasing external demand, improved tourism and sustained growth in semiconductor sales. Malaysia’s Purchasing Managers’ Index (PMI) marked an expansionary phase for the first time since September 2022, benefitting from the regional trade rebound and tech upcycle.

Malaysia’s economy is set to meet its growth target, with our gross domestic product growth projection being between 4.0% and 4.5%. An upside to growth would emanate from the potential of faster implementation of projects under multiple development blueprints. However, sustaining private spending growth is challenged by consumer expectations of higher inflation due to the ongoing rationalisation of subsidies. While the tourism sector registered higher growth in the first four months of 2024, sustaining the rebound requires continued enhancement of tourism policies amid higher competition from ASEAN peers.

Notably, Malaysia’s disinflationary trend has ended, although the inflation rate has remained relatively mild. In 1Q2024, inflation rose to 1.8% from 1.5% in 4Q2023. We expect inflation at 2.5%-3.0% with the second round of inflationary effects from the subsidy rationalisation, while noting such policies were designed in a manner that limits the extent of inflation variance. Additionally, geopolitical uncertainties increase risks to inflation, alongside volatility in commodity prices and rising costs through the supply chain. Nonetheless, sustained inflation and growth in Malaysia should provide Bank Negara Malaysia the scope to keep the overnight policy rate unchanged at 3.00% for 2024.