The World Bank has revised upward its economic growth forecast for Malaysia, upgrading the projection for 2024 to 4.9% from an earlier estimate of 4.3%. The lead economist for Malaysia in the World Bank made the revision public while presenting the October 2024 Malaysia Economic Monitor.
Sanghi credited the elevated forecasts to a combination of both domestic and external factors. He cited the improvement in the global economic landscape, “which has bettered even the most optimistic expectations six months ago”. Specifically, he pointed out that world growth is forecast to stabilize at a little below 2.6% this year despite persistent geopolitical tensions and high interest rates. And receding inflation has developed again a sense of an appetite for growth, and in the case of advanced economies, a clear renewal of it.
Domestically, the country is benefiting from upbeat economic momentum, enhanced political stability, and a benign policy environment that nurtures investment. “Malaysia is in a good place,” says Sanghi, pointing to consumer confidence going up and the growth of manufacturing and service sectors.
Further analysis revealed that Malaysia’s per capita output growth now stands at 12% higher than the pre-pandemic level. Relative to its ASEAN partners, Malaysia exceeded. Sanghi had later suggested that with an average growth rate of 4.3% if the exchange rate could be stabilized at 4.54 ringgit to the US dollar, then there is a possibility of it becoming a high-income nation by 2028. If the current exchange rate of close to 4.20 persists, then that time may be sooner than the year 2027.
In addition, while the Malaysian ringgit strengthened lately, Sanghi cited this as a sign of improvement in investor sentiment, motivated by three factors – easing US monetary policy, resilient domestic economic data released in the second quarter, and structural reforms initiated by the government. Targeted government initiatives, he said, and the efforts of Bank Negara Malaysia to make its currency market more functional helped boost investor sentiments.
In foreign direct investment, Malaysia has recorded net inflows in the second quarter of 2024 to be greater than in the same quarter last year, and this is most evident in the services sector. According to Sanghi, however, Malaysia has a very high level of FDI restrictiveness. Indeed, it is equal to that of Thailand but remains more restrictive than Vietnam. Relaxing these restrictions, especially in the upstream sector, would enhance productivity in the downstream industries, according to Sanghi.
And finally, on possible subsidy reforms for RON95 petrol, Sanghi said the whole implementation would depend much on proper time, price levels and a suitable narrative designed around the reform
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