KUALA LUMPUR: Malaysia's current account surplus is projected to widen this year, building on the RM28.2 billion surplus recorded in 2023 (1.5 per cent of GDP), despite last year's challenges.
Public Investment Bank Bhd (PublicInvest Research) said the expansion is expected to be driven by robust domestic industrial activity and increased private investment, contributing to a stronger surplus in the goods account.
"Enhanced growth prospects among key trading partners will further bolster this trend.
"However, the primary income account is likely to see a larger deficit, reflecting higher payments to foreign investors involved in ongoing projects.
"The adoption of advanced technologies such as artificial intelligence, cloud computing, digitalisation, and automation is also anticipated to increase compensation for foreign professionals, contributing to the projected widening of the primary income deficit," it said in a note.
The firm added that despite external downside risks this year, such as persistent geopolitical tensions and volatile commodity prices, Malaysia's trade dynamics are expected to benefit from the positive momentum in the semiconductor industry.
While trade performance remains vulnerable to global uncertainties, including rising inflationary pressures and tightening financial conditions, Medium-term prospects are poised for improvement.
"This outlook is supported by sustained inflows and the realisation of foreign direct investment (FDI) commitments."
On the ringgit, PublicInvest Research said the local currency is expected to gain underlying support from the directives from the Finance Ministry and the anticipated persistence of a current account surplus, coupled with an improved fiscal deficit target and a stronger operating surplus.
It said with these economic indicators, the ringgit is likely to stabilise and show resilience against external pressures.
"Consequently, we have revised our year-end forecast for the ringgit to 4.40-4.45 per USD, down from our previous estimate of RM4.55-4.65.
"Should the ringgit continue to outperform, particularly in the wake of a dovish pivot by the Federal Reserve, we anticipate that Bank Negara Malaysia may opt for a strategic approach, potentially stepping back from encouraging government-linked companies to repatriate foreign exchange receipts or accumulating foreign exchange reserves," it said.