MALAYSIA'S REAL GDP TO IMPROVE TO 4.5% IN 2024 ON RESILIENT DOMESTIC DEMAND - MOODY'S RATINGS

Credit ratings agency Moody's Ratings expects Malaysia's real gross domestic product (GDP) growth to improve to 4.5% in 2024 from 3.7% in 2023.

This reflects resilient domestic demand in the face of a challenging global environment and risks to the agricultural sector and inflation posed by El Nino, it said.

“Favourable labour market conditions will support household consumption, while government policies such as the National Energy Transition Roadmap and New Industrial Master Plan 2030 will underpin private and public investments, along with investment flows related to shifting regional supply chains,” it said in its Banking System Outlook report released on 7th March.

Moody's said weaker global growth will limit the contribution of net exports to GDP, even as it expects a cyclical recovery in electronics and semiconductors.

At the same time, the property market has remained weak, with the number of unsold housing units declining gradually but still staying elevated, while persistent oversupply issues continue to depress rental rates and occupancy of office and retail space.

“We expect the central bank to maintain current monetary policy settings at broadly neutral levels in 2024, which will not constrain credit demand.

“Systemwide credit will grow at 5.5%, broadly stable from the year before,” it said.

On the banking system outlook, Moody's expects it to remain stable, supported by higher economic growth and banks' strong capitalisation.

Robust domestic demand will continue to drive growth amid healthy employment conditions, it said.

“Malaysian banks' asset quality and profitability will remain stable, and we expect capitalisation to remain strong.

“While Malaysian banks are more susceptible to changes in liquidity conditions due to greater use of market funds, the banks have access to liquidity from the central bank when required,” it said.

The rating agency projected the loan growth to be broadly in line with deposit growth.

Additionally, Moody's expects stable net interest margins and mildly higher credit costs will keep the profitability of Malaysian banks largely stable in 2024.

It foresees repricing of deposits to be limited this year and competition for deposits to moderate as the overnight policy rate remains stable.

“At the same time, we expect credit costs to increase in 2024 as low provisions in 2023 were partly supported by the consumption of existing credit reserves,” it added.