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A. WORLD ECONOMIC OUTLOOK UPDATE
The “VUCA” Year 2025
- A sustained period of resilient growth in 2H 2024. The global economy sailed reasonably well to grow by 3.2% in 2024, driven by falling inflation, positive labour market conditions, resilient consumer spending and less restrictive monetary policy.
- This period is still marking rising geopolitical tensions in several regions, with the persistent military conflict in Ukraine was compounded by the conflict in Israel and Middle-East, a historically conflict-ridden region.
- With Donald Trump heading to the White House as the 47th President of the United States of America, the potential implementation of the tariffs policy, investment incentives and tax cuts as well as energy policy would stir significant and volatile responses in the global economy, capital flows and financial markets.
- 2025 is the year of volatility, uncertainty, complexity, and ambiguity (VUCA). The global economy will stay on course experiencing a moderate growth estimated 2.9% in turbulent times, shaped by both supportive fiscal and monetary policies amid challenging factors. It remains below the long-term average global economic growth of 3.8% in 2000-2019.
- Inflation and interest rates trajectory. The global disinflation process continues, but the key components of core inflation revealed that there was bumpiness in services inflation in some advanced economies. Some price pressures are persistent, including those from the services sector and wage growth. The limited progress towards inflation goals in recent months suggest stickiness in the last mile of disinflation to meet some major central banks' target.
B. MALAYSIA ECONOMIC OUTLOOK UPDATE
Malaysia’s Economic Outlook in 2025: Insights and Trends
- Continued expansion amid facing external and domestic challenges. The Malaysian economy has proven its resilience to end the year 2024 on a good position as it marches into 2025. Despite facing a confluence of headwinds ahead, recent macro patterns and economic indicators featuring domestic economy remains on the right track, and there must be no let up to addressing structural issues and economic reforms.
- Real GDP saw better-than-expected growth of 5.3% yoy in Q3 2024 and 5.2% in the first three quarters, closing 2024 with a full-year growth of 5.0%-5.3%, by our estimates. This is within the Ministry of Finance (MOF)’s estimated range between 4.8% and 5.3%.
- Broadening growth. The good GDP outturn was driven by strong public and private investment, improved exports, and increased households’ spending amid high cost of living increases. The services, manufacturing and construction sectors were the leading drivers.
- Inflationary pressures continue to mount. We caution that there are upside risks to the inflation outlook in 2025, which will continue to impact the cost of living, shaping consumer confidence and spending habits in the months to come. This is due to the government's plans to rationalise fuel subsidies, expand the scope of Sales Tax and Service Tax (SST), and increases in civil servants’ salaries and minimum wages for private sector employees, which could lead to faster-than-expected inflation. Inputs cost inflation will remain a key headwind in 2025 as businesses seek to offset some of the increased operating costs. We estimate inflation to increase between 2.5% and 3.0% in 2025 (estimated 1.9% in 2024).
- A resilient Ringgit. After suffering three successive years of depreciation by a cumulative of 13.1% against the USD in 2021-2023, the Ringgit closed the year 2024 with an appreciation of 2.7% against the USD at RM4.4700 at end-December 2024 compared to RM4.5915 at end-December 2023. The Ringgit’s fundamental value will be underpinned by strengthened economic resilience, favourable economic growth and investment prospects, and more importantly, there must be no let-up in domestic structural reforms as it is the key to ensure enduring support for an ‘undervalued’ Ringgit.