Malaysian economy to grow by up to 5.5% in 2024
Malaysia’s economy is expected to improve in the next 12 months, with gross domestic product (GDP) set to grow by 4.5% to 5.5% from an estimated 4% in 2023, according to credit rating agency RAM Ratings.
At the launch of its Economic Outlook 2024 report, the agency said in a statement that “the economy is benefitting from a potential turnaround in external demand”.
It said: “Resilient domestic demand, supported by benign inflation and interest rates would also propel growth momentum.
“However, with a need to fund critical development projects, government debt will remain relatively sticky at RM1.3 trillion (£221 billion) in 2024 (62.7% of GDP) and debt servicing not insignificant at 16.1% of total projected revenue in 2024,” it said.
The Outlook said the biggest risk to Malaysia’s growth will be whether the global economy successfully achieving a “soft landing” and avoiding further escalation of geopolitical conflicts. It added that a spike in global food and commodity prices could put pressure on domestic demand.
Cost pressures continue in 4Q 2023
However, a business sentiment survey conducted by RAM-CTOS under the Business Confidence Index indicated a fall for the second consecutive quarter in the fourth quarter of 2023, driven down by the negative sentiments of micro, small and medium enterprises (MSME) respondents.
According to the survey, the overall index fell to 48.9 from 50.4, signalling pessimism about business prospects in the next three months. For MSMEs, expectations for sales growth, profitability and capacity utilisation were weak across the board. Rising costs of doing business and weaker economic growth were the key reasons cited by the 141 firms polled for this survey.
Business conditions largely worsened among surveyed firms towards the end of 2023. Almost 50% of respondents reported lower sales and profit in 4Q 2023 compared with 1Q 2023. This is particularly acute among MSMEs as costs continue to rise, with limited ability to fully pass on cost increases to customers. In contrast, corporate firms (30% of the survey) respondents fared better, with a bigger share of firms reporting higher sales and profits at the year end than in 1Q 2023. MSMEs also faced tighter cash flow and access to finance during this period than corporates.
While around half of respondents would welcome government assistance in dealing with the rising cost of doing business, their needs differ. Financial assistance is most needed by micro firms, while for SMEs and larger companies support for business enhancements, including automation and training, are more relevant.
RAM said the survey’s findings underscores the necessity for a tailored approach in addressing the diverse needs of businesses. “While financial aid remains crucial for MSMEs, the SMEs and larger corporations seek support in enhancing their operations, including automation and upskilling to navigate the evolving business landscape,” it said.
Erick Hamburger, Group CEO of CTOS Digital, said the government is aware of the need to support MSMEs, given their sizable contribution to the economy. However, he said the survey indicated that accessing to government support programmes remains a challenge, particularly for micro firms. For example, close to 70% of micro firms do not plan to utilise the automation and training schemes announced under Budget 2024 and the main reason cited was simply not knowing where and how to apply for these schemes. For SMEs, around 80% intend to utilize the schemes for automation and/or training and around a quarter expressed facing similar barriers to access.
Chris W.K. Lee, RAM Holdings Group CEO and Executive Director, added: “Government schemes are needed to support MSMEs to scale up and innovate, but they should be preceded by effective communications and outreach programmes to reach the right target groups. Onboarding and administrative processes should also not be overly complex or cumbersome for applicants.”
