In its Economic and Monetary Review 2023, the central bank said the growth would be underpinned by continued expansion in domestic demand and improvement in external demand.
Tourism is expected to improve further, it said, while the implementation of new and ongoing multi-year projects by both the private and public sectors would support investment activity.
However, domestic growth remains subject to downside risks from both external and domestic factors.
“External factors include a weaker-than-expected global growth and further escalation of geopolitical conflict,” the report, which was released today, said.
On Monday, MIDF Research said Malaysia’s overall goods exports would rebound and grow at 5.2% in 2024, while the expected turnaround in the electrical and electronics sector was one of the factors that would support external trade recovery this year.
On the domestic front, BNM said it expects more “severe shocks” on commodity production, while the implementation of subsidy rationalisation could also weigh on the growth outlook.
However, it said these potential setbacks could be partially offset by targeted cash assistance from Putrajaya.
“Greater spillover from the tech upcycle, stronger-than-expected tourism activity, and faster implementation of existing and new investment projects would provide upside risks to domestic growth,” it said.
Inflation to remain moderate
BNM said headline inflation is expected to average at between 2% and 3.5% in 2024 amid contained cost pressures from easing global supply conditions.
Price pressures from tax changes and utility tariffs are expected to have a marginal impact on headline inflation, it said. The service tax was increased to 8% from 6% beginning March 1.
BNM said the impact of the ringgit depreciation on inflation would be contained by administered prices and relatively stable firm pricing behaviour.
“Core inflation is also expected to moderate, but remain above its long-term average.”
BNM however said the inflation outlook was subject to upside risks due to potential price adjustments on food and energy items, as well as external pressures from exchange rate and global commodity price developments.
It said the phased rationalisation of subsidies and price controls by the government would also lead to higher relative prices for selected Consumer Price Index items such as energy and food.
“The impact on domestic inflation will depend on the timing and magnitude of the subsidy rationalisation,” it said.
Mitigating measures, such as the proposed targeted diesel subsidies and disbursement of cash transfers, would also have an impact on domestic inflation, BNM said.