KUALA LUMPUR (Jan 24): Cost of living issues will continue vexing Malaysians in 2024, despite softening headline inflation and expectations of higher economic growth this year, according to OCBC chief economist Selena Ling.

"Inflation is a bugbear" especially for lower- and middle-class groups, said Ling, who pointed to instances where nominal wages are not keeping pace with inflation.

“I know the headline inflation looks quite mild, but I think food inflation is a lot higher than what the headline would suggest. So there is that part of the cost of living issues that is here to stay,” she told reporters here after a presentation on 2024 outlook.

Ling said although the global supply chain is adopting the China+1 strategy - which would count the Southeast Asian region amongst the top beneficiaries - business costs will still rise under such circumstances.

This will eventually lead to higher inflation as these costs are passed down to consumers, she said.

“It all comes at a cost, and it means higher business costs in general, [and] to a certain extent, will be passed on to the end consumers. The price is increasing at a slower pace, but generally, it is still increasing. So I think inflation will continue to be a little bit of a bugbear, especially to the low-level markets,” she added.

While private consumption is still healthy, the bank expects it to grow at a slower pace than pre-pandemic levels, despite its headline inflation forecast of 2.5% in 2024, which was unchanged from official levels in 2023.

In addition, Ling made clear that her headline inflation forecast for 2024 has yet to take into account the upcoming fuel subsidy rationalisation, since the government has not provided sufficient clarity on the timeline of implementation.

Nevertheless, OCBC Bank forecasted Malaysia’s GDP growth to remain resilient at 4.2% in 2024, increasing from the estimated 3.8% in 2023, as the US economy is seen escaping a hard landing while the Chinese economy is expected to stabilise.

“We expect that China's growth will stabilise this year. It probably bottomed [out] last year. It may not pick up very sharply, but we think that the policy direction is quite clear. They do want to be supportive for any downside growth risk, so both fiscal and monetary policy should be supportive,” said Ling.

Growth, she added, will be further supported by improvement in the global semiconductor industry.

“We think that the global semiconductor cycle went through quite a tough period of time when there was a lot of de-stocking and people were worried about US and China decoupling. The structural factors are still there, but at least in terms of the cycle turnaround, we also think that it has bottomed [out].

“In fact, if you look at some of the trade, the export numbers and the PMI (Purchasing Managers' Index) numbers, they are searching for a base. Not a very strong pick-up yet, but there are some tentative signs that it might [have] hit bottom [already],” she added.

Touching on currencies, OCBC Bank sees room for the ringgit to regain some ground against the US dollar at the 4.54-4.58 range as the US Federal Reserve pivots to a rate cut this year, while staying range bound against the Singapore dollar at 3.4683 by end-2024.

“We expect MAS (Monetary Authority of Singapore) to be on hold this year. There may be a chance that they may start to ease monetary policy, maybe in the second half of the year, if core inflation comes off. However, we also expect Bank Negara to be on hold. The net-net is going to be fairly range-bound this year,” said Ling, adding that Bank Negara Malaysia is expected to hold the Overnight Policy Rate at 3.0% throughout 2024.

The ringgit has been on a new bout of weakening since early 2023, and despite a temporary respite in 4Q2023, it remains depressed at 4.73 against the greenback.

It has also continued its downtrend against the Singapore dollar, which has persisted since 2Q2022 to a new record low of 3.533 against the neighbouring currency. 

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