Psst, time to wake up! Bank Negara’s 2023 Annual Report is out and here’s how this should matter to you.

It’s annual report season yet again! Bank Negara Malaysia (BNM) has released their 2023 Annual Report on 20 March 2023 here. With so many pages, there is a lot that you need to know for the year.

You might be wondering. Why is the report important? How could you use the information for your daily life?

At first glance, it is not obvious. But this article will detail to you how you should interpret the data and information to help you in your career and investment / financial journey.

We are excited to begin! Let’s get to it!

#1: Economic Growth to Improve to 4.0% to 5.0%

Economic growth or in economics terms, Gross Domestic Product, came in at 3.7% in 2023. BNM is projecting for the Malaysian economy to grow at a higher range of 4.0% to 5.0% in 2024.

For context, this is quite in line with the 10-year historical average (2010 to 2022) of Malaysia’s growth at 4.6%.

What should you infer from this? The economy will be growing at its normal rate, which is good. Stability is important for businesses. If you are an investor, the market won’t be as volatile as the past few years.

The economy is still expected to grow. That should be good for most companies’ share prices and dividends.

There are basically two reasons BNM thinks it will be higher.

  1. Firstly, they expect Malaysia’s trade performance to be stronger in 2024.
  2. Secondly, more tourists are projected to visit Malaysia.

#2: Trade Performance to Be Better in 2024

Malaysia’s export performance was atrocious in 2023, registering a decline of 7.9%. It makes sense, as the global situation was not doing so well and commodity prices were coming back down.

But in 2024, BNM is expecting great things from Malaysia’s trade. Exports are projected to rebound to a positive growth of 4.0%. This is consistent with the projection of global trade growth rising to a range of 2.9% to 3.4% in 2024 from 0.4% in 2023.

The story? A recovery in the technology cycle.

You see, technology like the economy, goes through cycles. 2023 was a down year. And 2024 is the start of the recovery. BNM writes this

“The global technology upcycle is projected to be driven by the replacement cycle of consumer electronics and global inventory correction, as firms replenish depleting stocks. Structural factors will lend further support, including rising demand for electric vehicles, industrial automation, and the incorporation of artificial intelligence in consumer and industrial goods.”

In English, this means that Malaysia’s exports will be better because companies ran out of stock and need to produce for the electric vehicles and AI-related companies.

#3: Expect More Tourists

Cuti-cuti Malaysia! BNM is of the hope that there will be more tourists coming into Malaysia in 2024, so much so that that Ministry of Tourism is projecting tourist arrivals to increase by 36% to 27.3 million. This is higher than the pre-pandemic level of 26.1 million in 2019.

The government is promoting more tourism activities overseas and has given 30-day visa-free opportunities to tourists from China and India.

Because of visa-free status, the Economist Intelligence Unit expects that Chinese tourists will likely favour countries such as Thailand, Singapore, Malaysia and the UAE this year. And, Malaysia has been rapidly increasing its flight frequencies with China because of this.

#4: Risks of Global Conflicts and Lower Commodity Prices

It’s not all sunshine and roses. BNM also flagged out some risks for the Malaysian economy that you should be aware about.

It seems like conflicts and wars are the talk of the town in recent years. And these are the ones BNM are concerned about

  1. Conflict between Russia-Ukraine (since 2022)
  2. Tensions in the Middle East (since Oct 2023)
  3. Worsening of U.S. and China relationships (since 2018)

These events do disrupt supply chains and global trade, as well as trigger financial market volatility and higher commodity prices’ in their words.

A clear example is how the conflicts in Russia-Ukraine and Middle East could reduce supply of petrol and gas as they are all big producers of these materials. And because of the Middle East conflict, the Red Sea sea trade route was attacked. So, shipping companies had to spend more money to go around the Red Sea to transport cargoes.

In the U.S. with China situation, both countries have been banning each other’s products. Other countries have been careful not to upset both countries while some even took sides – altogether not great for global trade.

#5: Inflation to be Between 2.0% and 3.5%

If you are a regular person, BNM’s forecast of an inflation between 2.0% and 3.5% for 2024 will be hard to understand. How should you interpret this then? (As a reference point, in 2023, inflation was 2.5%.)

What BNM is trying to say is that they are not sure how inflation will be in 2024. Hence, they gave a wide range. But that range will give clues. The lower range is 2.0%, while the higher range is 3.5%.

BNM thinks that inflation could be much higher in 2024 based on this, but they are not committing to it yet. The reason is simple. There is still no clear information on the fuel subsidy changes. BNM knows that it will increase fuel prices, but by how much is another question. And when fuel prices increase, this will also lead to higher prices for other products.

For now, you can expect inflation to go as high as 3.5% in 2024, and your petrol cost to increase.

#6: Projection of A Recovery in the Ringgit

The Ringgit. Every uncles, aunties, friends, relatives, families’ favourite topic. “The Ringgit … Cannot Lah”

BNM didn’t give an exact forecast of the Ringgit’s expected performance, but instead a general direction – a recovery. Here are their reasons.

  1. Monetary policy in the U.S.
  2. Rebound in trade
  3. Higher economic growth in Malaysia

Let’s translate it to simpler terms. The reason why the Ringgit has been weaker in the past few years is due mainly to the U.S. You see, when the U.S. raises interest rates, investors will buy the U.S. Dollar because U.S. government bonds give more returns. This weakens the Ringgit.

In 2024, the U.S. is actually planning to do the opposite – reduce interest rates. This should in theory bring investors back to the Ringgit.

Remember how Malaysia’s exports declined by 7.9% in 2023. Well, that was part of the reason too why the Ringgit was weak. In 2024, exports are expected to rebound to a positive growth of 4.0% so that should strengthen the Ringgit back.

The same can be said for Malaysia’s economic growth. A higher target range of 4.0% to 5.0% in 2024 (2023: 3.7%) should bring back investors to Malaysia and the Ringgit.

#7: ESG for Businesses to Accelerate

ESG is the buzzword nowadays. It stands for Environmental, Social, and Governance.

If you are business owner, you will be glad to know that banks are committing more funding to help Malaysian businesses to transition to ESG practices.

In BNM’s survey, the financial industry allocated a higher amount of RM240 billion in 2023 compared to RM110 billion in 2022.

Here’s also how they will help

  1. Green the value chain: Provide technical training and tools to SMEs to report carbon emissions.
  2. Standardized due diligence: Help businesses with the financing applications.
  3. Climate Data catalogue: Listing of granular data for businesses to understand.

Conclusion

There is a lot to unpack from Bank Negara Malaysia’s Annual Report 2023. Among the many details, these 7 items should be top on your list to understand first. They will provide you with knowledge to better make financial and investment decisions in 2024.

Keep your heads up and don’t let the almost 600 pages of report overwhelm you!

 

Curious about BNM’s Annual Report 2023? Let us know in the comments below!

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