Malaysia navigates diplomatic, economic, political challenges in 2024

It will be a dynamic year for the nation on the international stage, marked by a multitude of events 


THIS year, Prime Minister Datuk Seri Anwar Ibrahim is expected to prioritise the rejuvenation of the nation’s economy. 

Anwar had reaffirmed his commitment to attracting both domestic and foreign investments tied with principles of good governance, streamlined business processes and a reduction in bureaucracy. 

Addressing senior editors of all media in Putrajaya recently, he emphasised the central theme for the year. 

“Our priority for 2024 is certainly, the economy, economy, economy,” he said. 

With this in mind, Malay- sia is expected to anticipate a dynamic and eventful international landscape, marked by significant diplomatic, economic and political developments. 

One of the key highlights is the 50th anniversary of diplomatic relations between Malaysia and China, a milestone that signifies decades of collaboration, trade and cultural exchange. 

Anwar has extended an invitation to Chinese President Xi Jinping to mark this occasion in 2024, building upon the Comprehensive Strategic Partnership Agreement signed in 

2013, according to a statement. Meanwhile, Uganda is poised to host two critical international summits in January 2024, namely the 19th Summit of the Non-Aligned Movement (NAM) and the 3rd South Summit under the Group 77 and China framework.

These gatherings will give Malaysia a strategic platform to assert its diplomatic influence, advocate for developing nations’ interests and reaffirm its commitment to non-alignment in global affairs. 

This month also brings a historic development as Egypt, Ethiopia, Iran, Saudi Arabia and the United Arab Emirates (UAE) are invited to join the Brazil, Russia, India, China and South Africa (BRICS) coalition, signifying a new era of collaboration among major emerging economies. 

This move has implications for Malaysia’s diplomatic strategy, opening avenues for expanded economic partnerships and regional stability. 

Anwar has extended an invitation to Xi to mark the 50th anniversary of diplomatic relations between Malaysia and China and to further strengthen the bilateral relationship between the 2 nations (pic: Bloomberg)

Global Events 

The focus on neighbouring countries will also intensify this month with pivotal presidential elections in China and Bangladesh, setting the stage for potential shifts in regional dynamics. 

Additionally, Indonesia’s presidential election in February contributes to the evolving political landscape in South-East Asia. 

In March, Malaysia is expected to actively engage in regional affairs, participating in the Asean-Australia Special Commemorative Summit in Melbourne to mark 50 years of partnership. 

The political landscape also takes centre stage with presidential elections in Russia and Ukraine, influencing global geopolitics and regional dynamics, which, in turn, may affect diplomatic engagements and alliances. 

April to May turns the spotlight to India as it conducts its general elections, with the ruling BJP-led coalition expected to be re-elected, ensuring policy continuity. 

In June, Malaysians will keenly watch the European Parliament election, an event with potential implications for Malaysia-European Union relations and trade partnerships. 

July and August are marked by the 2024 Summer Olympics in Paris, captivating the world with sporting excellence and providing a stage for international cooperation and cultural exchange. 

As Laos chairs the Asean Summits in 2024, Malaysia is set to engage in discussions shaping the regional agenda as it prepares to assume the Asean chair in 2025. 

The United Nations General Assembly in September will offer Malaysia an opportunity to voice its stance on global issues and contribute to discussions on sustainable development, peace and security. 

October and November will shift the attention to Lima in Peru, as the Asia-Pacific Economic Cooperation summit takes place. This is a crucial opportunity for Malaysia to advance its economic interests and collaborate with key Pacific Rim economies. 

Globally, the year concludes its political scene with the highly anticipated 2024 US presidential election in November. 

Malaysia will closely observe the outcomes, recognising the impact of US policies on global affairs and potential implications for Malaysia-US relations. 

The spotlight will be on incumbent president Joe Biden and his predecessor Donald Trump, both seeking re-election. 

Sunway University economics professor Dr Yeah Kim Leng told The Malaysian Reserve (TMR) that there is increased optimism that the US economy will be able to achieve a soft landing in 2024 as signalled by the US Federal Reserve (Fed). 

“Nevertheless, the global economy is forecast to remain weak in 2024 with growth at slightly below the 3% estimated for 2023 by the International Monetary Fund (IMF),” he predicted. 

Despite the weaker global economy anticipated this year, he said Malaysia’s growth is projected to be higher at between 4.5% and 5% on account of an expected improvement in the country’s trade prospects and resilient domestic demand where aggregate private consumption, private investment and government spending are projected to remain strong. 

“The rising labour force participation rate coupled with increased employment growth will likely result in further decline in the unemployment rate from the current 3.4% to the 3% in 2024,” he added. 

Stock Market 

Apex Securities Bhd in its report stated that the healthcare sector might attract increased trading interest due to the resurgence of Covid-19. 

Additionally, the firm noted that the rise in gold prices could present trading opportunities within gold-related stocks. 

At the opening of 2023’s final week, Apex Securities reported that the FTSE Bursa Malaysia KLCI (FBM KLCI) remained nearly unchanged (-0.08%) ahead of the extended weekend festive break as investors stayed on the sidelines.

Conversely, lower liners showed gains, with the industrial sector (+0.38%) performing well, while the healthcare service sector (-0.36%) experienced profit-taking. 

The FBM KLCI formed another bearish candle as the key index slipped towards the middle Bollinger Band. 

“Indicators, however, stayed positive as the Moving Average Convergence/Divergence Line hovered above the Signal Line, while the Relative Strength Index lingered above 50. 

“Following the recent pullback, the benchmark index could stage a rebound towards the near-term resistance of 1,465. Immediate support is at 1,430,” it said in the report. 

Looking at the equities market, MIDF Research notes a positive start for global indices in 2024, with optimism surrounding a Fed pause. 

While certain markets experienced fluctuations, Asean markets underperformed in 1H23 due to various domestic factors. 

MIDF Research expects FBM KLCI to be supported by a less hostile monetary environment and resilient economic activities in 2024, with a year-end target of 1,665 points or price-earnings ratio 24 of 15 times, acknowledging limiting factors such as the risk of a US recession. 

Positive global developments and increased domestic political certainty under the unity govt enable the ringgit to conclude the 4Q with a notable 5.3% appreciation against the greenback

Ringgit and Inflation 

In 2023, the Malaysian ringgit exhibited a volatile trajectory, influenced by both domestic and international factors, according to a Bank Negara Malaysia (BNM) statement. 

Commencing the year on a positive note, the ringgit rode the wave of economic optimism stemming from the anticipated reopening post-Covid-19. 

This sentiment was buoyed by the expectation of a relatively restrained US interest rate hike cycle, BNM added. 

However, as the year progressed, the ringgit faced headwinds primarily emanating from the US. 

The continuous tightening of monetary policy by the Fed and a robust US job market prompted concerns about a more aggressive approach to combat inflation. 

Consequently, the ringgit depreciated by 5.4% against the greenback, closing the year at RM4.6340 on Dec 26, 2023, compared to its initial level of RM4.3965 on Jan 3. 

Despite this depreciation, it is crucial to emphasise that the ringgit’s weakening was largely attributed to external factors beyond the control of Malaysian policymakers. 

BNM governor Datuk Abdul Rasheed Ghaffour pointed out that the aggressive interest rate hikes by the Fed, a less-than-stellar economic performance in China and the easing of monetary policy by the Bank of China played pivotal roles in the ringgit’s slide. 

The ringgit’s journey throughout the year was marked by fluctuations, he noted. 

“It reached its peak at RM4.229 on Feb 2 but subsequently experienced an 11.96% decline, hitting RM4.735 per US dollar on Oct 19, the weakest level since 1998,” he said. 

In terms of quarterly performance, the ringgit displayed a marginal appreciation of 0.1% against the US dollar in the first quarter (1Q). 

However, it depreciated by 5.8% in 2Q due to the overarching influence of global developments on domestic financial conditions, according to BNM.

Concerns over a sluggish global economic outlook and a tepid rebound in China’s economy dampened market sentiments during this period. 

The 3Q witnessed exchange rate movements influenced by evolving expectations regarding the global monetary policy path, particularly driven by the strength of the US job market. 

The US dollar’s appreciation led to a 0.2% depreciation of the ringgit alongside other regional currencies. 

In 4Q, BNM added that positive global developments and increased domestic political certainty under the unity government contributed to a stronger ringgit. 

“The currency concluded the quarter with a notable 5.3% appreciation against the US dollar,” it noted. 

Additionally, the ringgit strengthened against the currencies of major trading partners, with its nominal effective exchange rate appreciating by 0.4% in the same period. 

In its weekly money review for the week ended Dec 22, 2023, MIDF Research reported that the US dollar saw its second consecutive week of depreciation, weakening against major currencies with the DXY dollar index dropping -0.8% week-over-week to 101.7. This marked the lowest closing since late July 2023. 

The decline in the dollar was attributed to receding demand, moderating inflation and a growing sentiment that the Fed might ease its policy interest rate in the coming year. 

Also, the firm reported that the ringgit reversed its depreciation from the previous week, registering a notable appreciation of +0.9% week-over-week to close at RM4.629. 

This marked its strongest closing level since mid-August 2023. 

The ringgit outperformed other regional currencies, capitalising on the weakness of the US dollar. 

Furthermore, favourable commodity price movements, particularly a +3.3% week-over-week increase in Brent crude oil prices to US$79.07 (RM365.30) per barrel, contributed to the ringgit’s positive momentum. 

On a similar note, Kenanga Investment Bank Bhd in its report dated Dec 22, 2023, titled Ringgit Weekly Outlook, said despite resistance from some Fed members oppo- sing market expectations of at least six rate cuts in the upcoming year, the ringgit has strengthened to approximately the 4.65 level against the dollar. 

The firm said it is mainly attributed to the market’s robust belief that the Fed will shift towards monetary easing as early as the first quarter of 2024. 

Moreover, the anticipation that BNM might keep the Overnight Policy Rate (OPR) unchanged throughout 2024 has added to the ringgit’s resilience.

Nonetheless, the gains of the local currency were limited by below-par Malaysia trade figures and the depreciation of the yuan. 

On inflation, Kenanga Investment in its Malaysia Consumer Price Index (CPI) report maintained its headline inflation forecasts for 2024 at 2.7%. 

In the upcoming months, the firm foresees headline inflation to sustain a monthly growth of 0.1%-0.2%, driven by the potential resurgence of food prices, especially with the looming possibility of a stronger El Niño this year. 

External factors, such as escalating geo-political tensions, also pose an additional risk of pushing prices higher. 

Domestically, the combination of the government’s subsidy rationalisation plan, an increase in services tax and the implementation of the progressive wage model is expected to heighten Malaysia’s inflationary pressures. 

Even so, the firm said improvements in the supply chain and a reduction in global demand may help keep inflation between the range of 2.5% and 3%. 

Despite expectations of a global growth deceleration this year, Kenanga Investment predicts Malaysia’s GDP to continue expanding, potentially growing by over 4% year-on-year (YoY). 

With domestic inflation expected to stay comfortably below the 3% threshold on average, the firm suggests no inclination for rate cuts on BNM’s agenda — which Kenanga Investment noted that it is likely to maintain the status quo, keeping the OPR at 3% throughout 2024. 

On the other hand, BIMB Securities Sdn Bhd, in its research report titled “Malaysia CPI Continues to Ease”, reported that CPI is anticipated to undergo a cooling trend until early 2024, attributed to the diminishing impact of demand-pull factors resulting from interest rate normalisation, despite improvements in the labour market domestically. 

While labour market conditions are expected to remain stable, challenges in the overall economy may impede the pace of job market improvement. 

The firm indicated that ongoing external challenges and uncertainties will continue to impact both the worldwide and local economies.

Despite the current decline in the CPI, BIMB Securities observed the possibility of businesses gaining confidence to transfer accumulated business cost increases to consumers, potentially resulting in a further rise in inflation in the upcoming months. 

Additionally, persistently high food prices are anticipated due to the subsidy rationalisation of various items. 

Positive global developments and increased domestic political certainty under the unity govt enable the ringgit to conclude the 4Q with a notable 5.3% appreciation against the greenback


BIMB Securities expected the CPI forecast for 2024 to moderate at 2.4%, which aligns with the lower end of the government’s estimated inflation forecast range of 2.1%-3.6%, factoring in the impact of the 2% hike in service tax from March 2024 but not accounting for the effects of other domestic price policy changes, particularly the subsidy rationalisation and progressive wage mechanism. 

Mirroring the tone, MIDF Research also anticipated a headline inflation rate of +3.2% for 2024, according to its Economic November 2023 report. 

In the first 11 months of 2023, the average food inflation stood at +5.1% YoY. 

The moderation in the food inflation rate exceeded expectations, leading to a projected overall price growth averaging +2.7% for the year. Non-food inflation is expected to average +1.5%. 

The overall inflation rate is forecasted to increase to +3.2%, driven by the rollout of a fuel-targeted subsidy as early as May 2024. 

“In our opinion, the government may introduce a managed-float price mechanism for RON95 at RM2.25 to RM2.35 per litre and provide cash handouts to those eligible as guided by the data from the national central database hub,” the report reads. 

Consequently, non-food inflation is anticipated to rise by +2.5%, while improved domestic supply and normalised global commodity prices are expected to push the food inflation rate lower to +4.5% in 2024. 

In its Economic Outlook 2024 report, RAM Ratings anticipated a steady improvement in Malaysia’s economic momentum in 2024, driven by a potential upswing in external demand. 

The firm said leading indicators suggested that global trade and semiconductor demand have bottomed out in 2023. 

Robust domestic demand, complemented by favourable inflation and interest rates, is expected to further propel growth. 

RAM Ratings forecasted that growth to range between 4.5% and 5.5% in 2024, up from an estimated 4% last year. 

The firm also added that the potential risks to Malaysia’s growth hinge on the global economy achieving a “soft landing” and avoiding heightened geopolitical conflicts. 

A surge in global food and commodity prices could exert pressure on domestic demand, along with unintended price ripple effects from a poorly executed retargeting of RON95 subsidies in the latter half of 2024 (2H24). 

On fiscal, RAM Ratings estimates a deficit of 4.2% of GDP in 2024 (compared to 5% in 2023), reflecting the government’s fiscal consolidation path. 

The narrower deficit is expected due to a reduced subsidy bill, improved management of operating expenditures and higher tax revenue collections from improved economic conditions in 2024. 

Despite the need to finance critical development projects, government debt is projected to remain relatively stable at RM1.3 trillion in 2024 (62.7% of GDP), with debt servicing accounting for 16.1% of total projected revenue in 2024 (compared to 15.2% in 2023). 

“Balancing between future economic growth and fiscal consolidation remains the standing order of the day,” it said in a Dec 20, 2023, statement. 

Also, in its recently released 2024 market outlook, MIDF Research maintains a cautious yet optimistic stance on Malaysia’s economic and equity market growth, projecting a steady pace for 2024. 

Factors such as inflation and interest rates, which influenced the economic landscape in 2023, are anticipated to wane. 

MIDF Research underscores the significance of monitoring government policies and the recovery in external trade as pivotal factors shaping 2024. 

Reflecting on 2023, the equities market anticipated a shift driven by a pause in the Fed’s interest rate tightening cycle. 

However, stubborn inflation delayed market expectations for almost a year. The recovery of China’s economy, though slower than anticipated, did not materialise as a downside risk. 

MIDF Research anticipates that the factors affecting the US rate hikes will likely dissipate in 2024, with the continued recovery of China’s economy supporting Malaysia’s external trade. 

The global economy is expected to maintain a similar growth pace in 2024 as seen in the preceding year, influenced by previous policy tightening in advanced economies. 

Despite potential upticks in global production activities, consumer spending remains a key factor supporting growth, buoyed by easing inflation, a healthy labour market and rising income. 

Trading countries may experience encouraging growth, benefitting from global production and trade recovery, albeit potentially limited by a slowdown in demand from advanced economies. 

Against this backdrop, MIDF Research predicts Malaysia’s GDP growth rate to reach +4.7% in 2024, an improvement from the estimated +4.2% in 2023. 

Resilient domestic demand, coupled with the revival of external trade, is expected to drive this expansion. 

Stable monetary policies in major countries, a stronger recovery in China and favourable global commodity prices are anticipated to boost Malaysia’s external front in 2024. 

The domestic economy is projected to be anchored by continuous steady consumer spending, increased tourism-related activities, and ongoing infrastructure projects. 

Despite an expected inflation rate of 3.2% in 2024, fuelled by targeted fuel subsidies, MIDF Research maintains a positive outlook for real wage growth. 

MIDF Research anticipates Malaysia’s OPR to remain at 3%, providing support in the face of stabilising core inflation rates and a challenging external environment. 

With the belief that the Fed has concluded its tightening cycle, MIDF Research sees the ringgit in a strong position to strengthen in 2024. 

Malaysia will closely observe the outcomes of the highly anticipated 2024 US presidential election in November when both the incumbent Biden (left) and his predecessor Trump seek re-election

Gaza’s War and Its Global Impacts

Hong Leong Bank Bhd in its Global Market Research reported that the ongoing Israel- Hamas conflict has shown minimal impact on oil and commodity prices. However, potential risks arise from recent Red Sea- related shipment rerouting. 

Universiti Utara Malaysia political analyst Professor Dr Mohd Azizuddin Mohd Sani believed it has already had a significant impact on the global market and investor sentiment. 

“Boycotts of products produced by Israel-friendly or closely linked companies, the blockade in the Red Sea by the Houthi and the potential hike in oil prices are causing concern among many investors,” he told TMR. 

He suggested that it could lead to a profound global economic crisis should the conflict persist and escalate to encompass additional nations. 

Concerning oil prices, the impact on non-producing nations could be severe, he said. 

Nevertheless, Mohd Azizuddin noted that despite Western sanctions due to the conflict in Ukraine, Russia might still find avenues to sell its oil to countries like Saudi Arabia, China, India and others. 

“I believe there is a potential solution to stabilise the oil market and prevent significant price fluctuations,” he added. 

Succinctly, 2024 promises to be a dynamic year for Malaysia on the international stage, marked by a multitude of events shaping the nation’s diplomatic, economic and political landscape. 

Meanwhile, political analyst Rizal Hamdan said the geopolitical landscape plays a crucial role in shaping global investment, intertwining various factors. 

“Political turbulence, such as the conflict in Gaza, has the potential to influence investor sentiment worldwide,” he told TMR. 

The Gaza conflict could create disruptions in the supply chain, particularly if it leads to an increase in oil prices. 

He added that historical events, such as the Israeli-Arab war in 1973, have demonstrated how geopolitical conflicts can cause substantial shocks in global oil prices. 

Rizal explained that the involvement of external groups like Hezbollah in the Gaza conflict may escalate the situation, posing higher risks to the oil industry and other businesses. 

Moreover, the conflict’s regional expansion could disrupt the global supply chain through blockades of essential waterways like the Red Sea and Suez Canal. 

Additionally, he said past incidents, like the deliberate firing of ballistic missiles by Houthi rebels in Yemen on commercial ships bound for Israel, have shown the potential for unintended consequences on international trade. 

The involvement of Iran in supporting Hamas could also strengthen sanctions against Iranian oil exports, further affecting global oil prices. 

“The escalation of violence in the region may also impact recent global trade initiatives, affecting trade cooperation, information and technology exchange, and financial market links between the East and the West,” he added. 

Beyond the Gaza conflict, Rizal opined that the geopolitical risk in 2024 extends to the tension between China and Taiwan. 

He said the scheduled Taiwan presidential election in January could escalate tensions, with potential repercussions for the Asia Pacific region and the world. 

“The global semiconductor supply chain, heavily reliant on Taiwan, could face disruptions, impacting various industries,” he predicted, adding that a large-scale conflict between China and Taiwan could jeopardise global trade routes, particularly in the South China Sea. 

Rizal said the conflict may disrupt more than US$3 trillion worth of trade passing through the South China Sea annually, affecting not only China and Taiwan but also Asean countries and the global economy. 

“Despite tensions, the likelihood of a conflict unfolding in 2024 is deemed unlikely, considering the global focus on recovering from the economic fallout of the pandemic,” he concluded. 

  • This article first appeared in The Malaysian Reserve weekly print edition