The transformation that can occur within the span of a year is truly remarkable. At the start of the year, many analysts forecasted a slight recession in the US, a deeper one in Europe, and a strong recovery in China. However, China is having difficulty regaining its footing, Europe handled the crisis better than expected, and the United States did not experience a recession[1]. 2023 presented economists with a number of unexpected challenges, including the rapid development of artificial intelligence (AI) and bank crises.


The Malaysian economy continues to be resilient to external headwinds, with growth drivers having shifted to robust domestic demand. Inflation is steadily moderating. While the broadly neutral monetary policy stance remains appropriate at present, a tightening bias is recommended in the near term, given upside risks to inflation. The appropriate fiscal consolidation path charted in the 2024 Budget needs to be underpinned by well-identified and high-quality revenue measures. Implementation of the policy initiatives under the MADANI Economy framework, the mid-term review of the Twelfth Malaysia Plan, and the accompanying national strategic plans should accelerate to support medium-term growth and achieve high-income status.




2023 In Retrospection


Global Economic Slowdown

In 2023, the global economy faced significant headwinds, leading to a slowdown in economic growth. This deceleration was primarily attributed to the tightening of monetary policies by central banks worldwide in an attempt to curb the high inflation lingering from post-pandemic recovery periods. Despite these challenges, some factors such as robust wage growth and the utilization of accumulated excess savings helped mitigate the impact of the slowdown. These savings acted as a buffer, allowing consumers to maintain spending despite increased prices and interest rates. Moreover, while some regions faced severe slowdowns, others benefited from a rebound in specific sectors, creating a mixed global economic landscape.


Impact of Banking Stress

The financial sector experienced significant turmoil, exemplified by the collapse of Silicon Valley Bank in the US and the dramatic absorption of Credit Suisse by UBS. These events triggered widespread concern over potential global financial contagion, reminiscent of previous financial crises. In response, central banks and regulatory authorities across the globe took swift actions, including the provision of emergency liquidity and reassurances to the markets, to stabilize the situation. These interventions were crucial in preventing a more extensive financial meltdown and restoring confidence in the global banking system.


China’s Economic Fluctuations

China's economic trajectory in 2023 was notably volatile. Initially, the economy showed promising signs of a robust recovery following the lifting of its stringent zero-COVID policies. However, this optimism was short-lived as the economy soon faced challenges from declining external demand and persistent issues within the property sector. The latter was particularly impactful, as falling property prices eroded consumer wealth and confidence, leading to reduced consumer spending and investment. The government's measures to stabilize the property market only partially alleviated these concerns, reflecting the complexity of China's economic challenges.


Trade and Inflation Trends

Global trade experienced a significant deceleration in 2023, affected by a combination of factors including reduced consumer demand, heightened trade restrictions, and a strategic shift from goods to services. Moreover, the global technology sector entered a downcycle, further dampening trade volumes. Inflation trends were mixed; headline inflation rates began to ease globally, yet core inflation — which excludes volatile food and energy prices — remained persistently high. This persistent core inflation led central banks to continue their cautious approach towards monetary policy, maintaining higher interest rates to prevent overheating economies.


Financial Markets and Monetary Policies

Financial markets in 2023 were heavily influenced by the evolving expectations around monetary policy paths, particularly in major economies. The anticipation and reaction to policy moves by the U.S. Federal Reserve and other central banks played a significant role in shaping market dynamics, from bond yields to stock market performances. The overall sentiment was governed by the tension between controlling inflation and supporting economic growth, with central banks navigating complex trade-offs to ensure long-term financial stability and economic resilience.


Malaysia’s Economic Performance

Malaysia's economy expanded by 3.7% in 2023 (Figure 1), supported largely by strong domestic demand and a recovery in the tourism sector as global travel resumed more broadly. However, the economy was not immune to challenges. It grappled with rising living costs and external economic pressures, including decreased global demand affecting its export-oriented sectors and disruptions in commodity supply chains.


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Despite these hurdles, targeted fiscal measures and monetary policies helped to cushion the economic impact and support gradual growth. The reopening of the economy and significant policy initiatives, along with normalising conditions from the high base in 2022, contributed to the more moderate growth. The growth reached its trough in the second quarter of 2023 (Figure 2) as a result of these elements coming together.



2024 Economic Outlook and Performance


Global Economic Growth

In 2024, the global economy is expected to maintain its growth momentum despite facing several challenges. These include the continued effects of tight monetary policies implemented in previous years and the phasing out of fiscal supports which had been introduced during economic downturns. However, these headwinds are likely to be mitigated by several supporting factors. Key among them is moderating inflation, which should ease cost pressures on businesses and consumers alike. The global labour markets remain resilient, aiding in sustaining consumer spending and economic stability. Additionally, a significant rebound in global trade is projected, energized by recovery in various sectors including technology, tourism, and green products, which include electric vehicles, lithium batteries, and solar cells.


Sustained Growth Amid Challenges: The global economy in 2024 is anticipated to continue its growth trajectory, despite facing numerous challenges. The primary challenges highlighted include the ongoing effects of tight monetary policies, which could potentially slow economic activity due to higher borrowing costs. Additionally, the gradual withdrawal of fiscal support that had been bolstering economies during the pandemic is also expected to pose a drag on growth.


Moderating Inflation as a Cushion: A crucial factor expected to cushion the impact of these challenges is moderating inflation. After periods of heightened inflationary pressures, 2024 is expected to see a global trend of easing inflation rates. This moderation is significant because it alleviates some cost pressures on businesses and consumers, thereby supporting continued expenditure and economic activity despite tighter monetary conditions.


Supporting Factors

Resilient Labor Markets: The global labour markets are expected to remain resilient, which is a positive sign for consumer spending and overall economic stability. Resilient employment conditions ensure that households maintain spending power, which is critical for sustaining demand within the economy.


Rebound in Global Trade: Another major supporting factor is a significant rebound in global trade. After a period of subdued trade activity, 2024 is forecasted to see a revival, facilitated by improved economic conditions and the easing of supply chain disruptions that had previously hampered trade flows. It is anticipated to witness substantial growth, estimated to be between 2.9% and 3.4%, a significant increase from just 0.4% in 2023 (Figure 3).

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This growth is primarily driven by a global technology upcycle, which includes a surge in demand for consumer electronics, industrial automation, and the incorporation of artificial intelligence in various consumer and industrial products. The structural demand for new technology products, particularly semiconductors, is expected to see a major uptick, with global semiconductor sales projected to grow by 13.1% in 2024.


Technological and Industrial Expansion: The report emphasizes the role of technological advancement and the expansion of industries such as electric vehicles, lithium batteries, and solar cells. These sectors not only represent new growth areas but also contribute to diversifying the economic base, making economies more resilient to sector-specific shocks.


Analysis of Policy Measures: An analysis of global policy measures, especially monetary policies across major central banks, is crucial. Inflation globally is forecasted to continue its trend of moderation in 2024, largely driven by disinflation in advanced economies. This is expected to be supported by easing conditions in labour markets and the pass-through effects of earlier declines in commodity prices. Such disinflation allows for an environment where central banks might start easing monetary policies, which could lead to more favourable borrowing conditions and support sustained economic growth.


Regional Economic Performance

Most regional economies are poised to experience robust growth in 2024, buoyed by several factors including the continued rebound in global trade. This rebound is particularly facilitated by technological advancements and a recovery in global tourism, which was severely impacted by the COVID-19 pandemic. In specific regions, such as Asia Pacific, the recovery in tourism is supported by increased flight capacities and pent-up demand. Domestic demand across these regions is also expected to be less constrained compared to the previous periods, primarily due to lesser monetary tightening and reduced inflationary pressures compared to major advanced economies.


Diverging Growth Prospects

Developed Economies: In major advanced economies, growth is expected to be moderate due to the residual effects of tightened monetary policies aimed at controlling inflation and the gradual withdrawal of fiscal stimuli. These economies are also navigating challenges such as labour market adjustments and technological transformations that impact overall productivity and growth.


Emerging Markets and Developing Economies: These regions are likely to experience more robust growth compared to developed economies. Factors contributing to this include a stronger rebound in domestic demand, less stringent monetary conditions, and ongoing investments in infrastructure and digital transformation. Moreover, these economies might benefit disproportionately from the recovery in global trade, given their significant role in global supply chains.


Specific Regional Highlights

Asia Pacific: This region is expected to continue its dynamic growth, supported by strong domestic consumption and investments. The gradual opening of borders and the return of tourists are particularly beneficial for economies that are heavily reliant on tourism and travel-related industries.


Latin America: Economic activity in Latin America might see a varied performance, with some countries benefiting from commodity exports amid rising global demand, while others might struggle with political instability and structural inefficiencies.


Africa: Many African economies are projected to maintain a steady growth trajectory, driven by ongoing infrastructure developments and an increasing integration into global markets. However, challenges such as political instability and climate-related issues could pose significant risks.


Europe: Growth in European countries is expected to be moderate, balancing the effects of ongoing policy support against challenges like energy security and the long-term impacts of Brexit. Additionally, the transition towards greener economies is expected to play a significant role in shaping economic activities.


Influence of Global Trade: The resurgence of global trade is a pivotal factor across all regions. As trade barriers continue to ease and logistic challenges from the pandemic diminish, regions with strong export sectors or those that are integral parts of global supply chains are likely to see significant benefits.


China’s Economic Outlook

China’s economic growth in 2024 is expected to be somewhat tempered, primarily due to ongoing challenges in its property market which continue to constrain consumer sentiment and spending. However, several factors are likely to support its economy. The rebound in global trade, driven by rising global demand for technology and green products, will benefit China. Additionally, the Chinese government’s policies aimed at stimulating economic activity through significant infrastructure spending and expansionary monetary and fiscal policies, including a substantial issuance of government bonds, are expected to underpin growth.


Malaysia’s Economic Forecast and Q1 Performance

Malaysia's economic outlook for 2024 is optimistic, with growth projected to be between 4% and 5%. This growth is expected to be driven by robust domestic demand, continuous employment, and wage growth, which in turn boost household spending. The tourism sector is anticipated to significantly improve, with initiatives aimed at boosting tourist arrivals well above pre-pandemic levels. The implementation of infrastructure projects and investment in green energy and technology sectors are additional drivers expected to support economic expansion.


The First Quarter Performance together with the outlook for the rest of the year are briefly highlighted below.

Economic Performance

  • GDP Growth: Malaysia’s GDP grew by 4.2%, up from 2.9% in the previous quarter, supported by higher household spending and stronger investment activities.
  • Exports: A significant turnaround with a 5.2% increase in exports, rebounding from a -7.9% decline in the previous quarter.
  • Inflation: Headline inflation remained moderate at 1.7%, while core inflation was at 1.8%.
  • Labour Market: The unemployment rate held steady at 3.3%, with nominal wages increasing by 2.6%.

Monetary and Financial Developments

  • Interest Rates: The Overnight Policy Rate (OPR) was maintained at 3.00% across January, March, and May 2024 MPC meetings.
  • Exchange Rate: The ringgit depreciated against the US Dollar, influenced by external factors including strong US dollar performance and geopolitical tensions.

Policy Considerations

  • The BNM continues to monitor inflation and growth closely, maintaining a supportive monetary policy stance to foster economic stability and growth.
  • The ringgit’s value is expected to be supported by coordinated initiatives from the government and BNM.


Macroeconomic Outlook

Malaysia’s economic growth will be supported by robust domestic demand, a rebound in exports, and continued investment activities.


Inflation Outlook

Inflation for 2024 is expected to remain moderate, with headline and core inflation projected to average between 2-3.5% and 2-3% respectively.


Risks and Uncertainties

The global economic outlook remains susceptible to several risks and uncertainties. These include potential higher-than-expected inflation, which could result in prolonged high-interest rates and dampen consumer spending. Geopolitical tensions, ongoing trade restrictions, and potential disruptions in shipping could further complicate global trade dynamics. For Malaysia, specific risks include external shocks such as weaker global growth, geopolitical conflicts, and domestic factors like adverse weather events impacting commodity production.



In conclusion, in the future, resilient domestic spending will be the primary driver of Malaysia’s economic growth, with additional help from the revival of exports. Employment and salary growth will be sustained, which will help household expenditure. It is anticipated that visitor spending and arrivals will continue to rise. Investment activities will also be enhanced by the execution of catalytic efforts under national master plans, higher realisation of approved investments, and the ongoing advancement of multi-year projects in both the public and private sectors. Downside risks to the economic projection include bigger declines in commodities production, further escalation of geopolitical crises, and weaker-than-expected external demand.



Malaysia Budget 2024 Highlights


Abdussalam Shokhawi
Executive Director,

Group Managing Partner’s Office

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