FMM: Malaysia poised for an export-led recovery

The performance of the global economy in 2023 had surprised on the upside, exhibiting remarkable sustained resilience to sharp interest rate increases.

Given the current global economic scenario, the nearterm policy challenge for central banks is to bring about a soft landing. This is a delicate and fine balance.

While acting too soon may lead to an inflation rebound, waiting too long to ease may dampen the economy too much.

Federation of Malaysia Manufacturers (FMM) president Tan Sri Soh Thian Lai saw that extending the momentum from last year, the ringgit exchange rate dropped to its lowest level of 4.8 in February this year against the US dollar, the lowest since 1988, despite strong fundamentals.

“Notwithstanding this, Malaysia’s foreign reserves cover is adequate, while the current account balance remains in surplus,” he said in a statement yesterday. A credit rating of A minus underlines its ability to meet its debt obligation. Hence, there is no need to peg the currency. Developed markets central banks are expected to cut interest rates in the second half of 2024 (2H24). The ringgit exchange rate will, therefore, end 2024 on a firmer footing.”

Soh thus believed the Malaysian economy is poised for an export-led recovery. Malaysia’s PMI reading signals that manufacturing activities have troughed and are on course for a gradual recovery.

While the surge in intermediate imports foreshadows an export recovery, a tourism boom and a pick-up in investment momentum would add support.

“Private consumption is expected to slow while inflation rebounds. Consumer spending likely would be more restrained in 2024, with the hike in the SST rate and the government subsidy rationalisation programme, which would exert pressure on inflation and the cost of living.

“On Malaysia’s economic outlook, we are taking a more cautious tone.

“Being less sanguine on private consumption spending, we expect 2024 economic growth to settle at the lower end of the official forecast spectrum of 4 to 5 per cent.

“A modest recovery in exports, the uptick in investments and the recovery in the tourism sector will continue to drive growth. A better second half of 2024 is expected as global monetary conditions ease.”