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Malaysia's Inflation Likely To Trend At 2.9 Pct In 2025 -- Allianz

24/10/2024 10:10 PM

KUALA LUMPUR, Oct 24 (Bernama) -- Malaysia’s inflation is likely to trend at 2.3 per cent in 2024 and 2.9 per cent in 2025, compared to Bank Negara Malaysia’s (BNM) forecast of between 2 per cent and 3.5 per cent for 2024, Allianz SE chief economist Ludovic Subran said.

He did not expect to see a higher range of inflation, but it is true that withdrawing subsidies and increasing the value-added tax can create a natural inflationary effect, serving as a one-time base effect.

“As a result, we anticipate inflation in Malaysia to be 2.9 per cent in 2025, which is below three per cent. This indicates that BNM is unlikely to cut interest rates in our forecast for the next 18 months.

“Which may be good also to manage the ringgit, which has been the currency that unfortunately reacts quite strongly to the rest of the world,” he said at the Asia Pacific Economic Outlook 2024 here today. 

Subran expected Malaysia’s fiscal deficit to be at 4.0 per cent compared to 3.8 per cent as announced by Prime Minister Datuk Seri Anwar Ibrahim who is also the Finance Minister during the Budget 2025 tabling. 

“Looking at the numbers I think it's feasible, but the main issue is it's going to be very hard to get the subsidies in 2025, the transport subsidies.

“Even if you do that, for me, one of the things that was surprising is that the subsidies have amounted to 3.6 per cent of gross domestic product (GDP) in the second quarter of 2024 (2Q 2024). It used to be at 1.8 per cent of GDP in 2Q 2019... the RON95 subsidies,” he said. 

He said other countries that have implemented similar measures, governments usually need to increase social transfer programmes.

"So, while you remove the subsidy, you introduce conditional cash transfers and provide support for rural areas and the poor people so that they can withstand.

"I do not think you are going to get as much relief in the budget. That’s why we have this buffer and we think the fiscal deficit will be around 4.0 per cent," he added. 

Separately, Subran said in a statement that Malaysia’s GDP is expected to grow by 4.8 per cent in 2024, 4.2 per cent in 2025 and 4.0 per cent in 2026.

“BNM is expected to keep its overnight policy rate (OPR) at 3.0 per cent to support the ringgit and curb inflationary pressures that may stem from the phasing out of subsidies. However, the rise in minimum wage is not expected to contribute significantly to inflation,” he said. 

His estimates for 2025 are rather conservative given the lower public infrastructure spend along with lower retail and manufacturing sales compared to pre-pandemic levels.

“Given the global uncertainty ahead of the US elections and the trend of fiscal consolidation across the region and beyond, a cautious stance in the budget is welcomed to cushion any unintended trends,” he added. 

He said Malaysia also has a big opportunity to prepare itself to gain more market share through the green transition supply chain.

“China is expected to add more than US$2 billion (RM8.69 billion) in exports as part of its stimulus package to reinvigorate its economy and ease its real estate crisis.

“Malaysia’s diversion away from China and subsequent diversification into other supply chains has been beneficial to its economy.

“It is an area where it can position itself to capitalise on the regional supply chain, and it should position itself strongly in the areas of social, green and tech infrastructure,” he said. 

-- BERNAMA

 


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