KUALA LUMPUR (June 27): Higher investments and exports will support Malaysia’s economic growth though consumer spending is likely to stay subdued, Australia and New Zealand Banking Group Ltd (ANZ) said.

Gross fixed capital formation, capital goods imports and rising manufacturing productions point to more robust investment activity in 2024, ANZ said in its quarterly outlook note. New export orders and intermediate goods imports have also risen, indicating that exports are likely to recover further, it said.

Uncertainties surrounding the petrol subsidy rationalisation and its impact on household purchasing power will impede consumption spending in the near term, ANZ flagged. ANZ’s forecast is for Malaysia’s economic growth to come in at 4.2% this year.

That compares to the official projection of 4%-5% growth this year. Malaysia is betting on exports recovery and higher tourist arrivals to bolster consumer spending and business investments. In the first quarter, gross domestic product grew 4.2% year-on-year.

Earlier this month, the government announced withdrawal of the blanket diesel subsidy and floated retail diesel prices in Peninsular Malaysia. The subsidy rationalisation for RON95, the most widely-used petrol variant, is expected to follow suit.

On its own, the adjustment in diesel prices will have little impact on the inflation outlook as only 1% of personal transport vehicles run on diesel, while the second-round effects should also be “limited”, ANZ noted.

The rationaliszation of petrol subsidy, however, will have “a more substantial impact” on overall inflation, ANZ said. It expects headline consumer price increase to average 2.9% in 2024 and 2.7% in 2025.

Still, “timely implementation of targeted subsidies for the RON95 fuel will be necessary to avoid the risk of a fiscal slippage”, ANZ stressed.

Malaysia’s central bank, meanwhile, will see any spike in inflation as a one-time structural adjustment in prices, which would not warrant any monetary policy action, ANZ said.

Bank Negara Malaysia (BNM) will likely keep the overnight policy rate unchanged at 3.00% till the end of 2024, according to ANZ. “There is no urgency to cut rates with real rates at low levels and wide negative spread of local rates over the USD interest rates,” it added.

BNM has kept the benchmark rate unchanged since it was last raised in May 2023 by 25 basis points.

https://www.theedgemarkets.com/node/717040