Malaysia posted a weaker-than-expected advanced gross domestic product (GDP) estimate of 3.4% in 4Q2023 (Consensus: 4.1%; 3Q2023: 3.3%), as growth in the services sector moderated to 4.7% (3Q2023: 5.0%). Consequently, the full-year advanced estimate GDP growth registered 3.8%, below the Budget 2024 estimate of 4.0%. Looking ahead, we project a higher GDP growth of 4.0%-4.5% in 2024, premised on a firmer rebound in tourism, steady employment as well as an anticipated recovery in the external sector, which will provide much-needed growth momentum for the manufacturing sector.
The ringgit, along with other Asian currencies, broadly weakened against the greenback in January 2024. This is largely attributable to the broad dollar strength, driven by prospects of a higher-for-longer interest rate environment in the US. We envisage the shift in advanced economies’ interest rate trajectory expectations to exert pressures on the ringgit in the near term and lead to episodes of fund flow volatilities in the local bond and equity markets.
The Malaysian Government Securities (MGS) market reacted to the rise in US Treasury yields following investors’ reassessment of the path for the Federal Reserve’s (Fed) interest rate policy amid positive US economic data. A prominent increase in yields was noted at the longer end of the MGS yield curve. Notwithstanding the elevated global interest rate environment, the local bond yields are expected to remain steady amid stable domestic inflation and expectations of Bank Negara Malaysia’s (BNM) unchanged policy rate.
The local corporate bond market rallied in January 2024, with yields of the high-rated category dropping, particularly at the longer end of the curve. The month’s rally in the local corporate bond market suggests positive investor sentiment amid expectations of a firmer domestic economic environment. Consequently, the yield spread between the high-rated corporate bonds and MGS narrowed for the month.
Headline inflation remained steady at 1.5% in December 2023 (Nov: 1.5%), bringing 2023’s full-year inflation to 2.5% (2022: 3.4%). Going into 2024, we expect inflation to rise at a steady pace, ranging between 2.5% and 3.0%. The wide inflation range reflects the upside risks stemming from the impact of subsidy rationalisation and other new tax measures as well as volatilities in commodity prices. Given the rising inflationary pressure, uncertain Fed interest rate trajectory and ringgit weakness, BNM will likely adopt a wait-and-see approach and keep the Overnight Policy Rate at 3.00% in 2024.