KUALA LUMPUR: The Malaysian Institute of Economic Research (MIER) says a stronger ringgit, solid domestic macro fundamentals and clear policy direction from the Madani framework will keep foreign investors interested.
Additionally, the reaffirmation of Malaysia's sovereign credit ratings with a 'stable' outlook by S&P Global Ratings and Fitch Ratings could further boost this appeal.
In its July 2024 economic review, MIER noted that S&P views Malaysia's economic growth as sustainable, with a narrowing deficit bolstered by a strong labour market and forthcoming progressive wage policies.
On the other hand, Fitch's stable outlook is attributed to Malaysia's diversified export base, resilient economy, and substantial current account surpluses.
"Potential rating upgrade in 2025 is on the cards. We could move up the ladder with A- from Fitch (now: BBB+) and A from S&P (now: A-).
"Catalysts for potential upgrade – ongoing fiscal consolidation, better governance, strong economic fundamentals and public finances that includes the federal debt-to-GDP ratio," it added.
MIER also indicated in its report that inflation could rise in the second half of 2024 (2H24) due to shocks from both domestic and external factors.
"Borrowing costs should remain stable. The 3.00 per cent overnight policy rate is expected to remain throughout 2024.
"Bank Negara Malaysia would continue to focus on supporting economic growth while being vigilant on inflation."
Although inflation was stable in 1H24, MIER added, it could gain in 2H24 coming from shocks arising from the domestic and external.
But the upside on inflation would remain at a manageable level," it added.
The institute observed that 2H24 might also lead to a positive wealth effect stemming from the equity market.
"It has emerged into a bright spot in Asean. Foreign investors' appetite has gained momentum. It is expected to continue in 2H24 and likely to extend into 2025.
"Political stability, ongoing policy reforms, execution of the many frameworks and blueprints announced that would benefit key sectors, strong commitment to sustainability and long-term competitiveness are the key drivers," it said.