[MALAYSIA] The Malaysian ringgit has seen a notable boost against the US dollar following the release of stronger-than-expected GDP growth for Malaysia in the fourth quarter (4Q) of 2024. On February 17, 2025, the local currency opened at 4.4265/4350 against the US dollar, a slight improvement from the previous day’s close of 4.4310/4385. This rise reflects growing investor confidence in Malaysia's economic recovery and underscores the strengthening of the nation’s economic fundamentals.
The Impact of Strong GDP Growth on the Ringgit
The surge in the ringgit’s value against the US dollar can largely be attributed to Malaysia’s robust GDP growth in the fourth quarter of 2024. According to Dr. Mohd Afzanizam Abdul Rashid, Chief Economist at Bank Muamalat Malaysia Bhd, the stronger-than-expected performance of the economy has had a positive impact on the local currency. “The fiscal deficits for last year were lower at RM79.2 billion or 4.1% of GDP, compared to the government estimates of RM84.3 billion or 4.3%,” he said.
This outcome demonstrates the effectiveness of Malaysia’s fiscal consolidation efforts, which have contributed to a more stable economic outlook. With a lower-than-expected fiscal deficit and the overall resilience of the economy, Malaysia’s credit rating outlook remains stable, which bodes well for its currency.
Dr. Afzanizam further noted that the improvement in fiscal management coupled with a healthy GDP growth trajectory positions the Malaysian economy for continued stability. “This shows that fiscal consolidation efforts are yielding promising results, which could be favorable from the credit rating agencies' perspective,” he said.
The Malaysian economy showed resilience in 4Q24, as key sectors including manufacturing, services, and exports performed better than expected, further supporting the local currency's rise. Investors are often keen to back currencies of countries with a healthy economic outlook, and Malaysia’s strong economic fundamentals are signaling stability and growth.
Malaysian GDP Performance in 4Q24
Malaysia’s GDP growth in 4Q24 was an important indicator of the country’s economic strength. The economy grew at a stronger pace than anticipated, driven by strong export performance and the rebound in domestic consumption. The country’s GDP recorded a growth rate of 4.3%, outperforming analysts’ forecasts of 3.8%. This better-than-expected growth in the final quarter of 2024 provided a much-needed boost to investor sentiment in the local currency markets.
Growth Drivers
Several factors contributed to Malaysia’s strong GDP performance, including the continued expansion in the manufacturing and services sectors. These sectors benefitted from both domestic demand and the increased export of goods, particularly in electronics and palm oil. Malaysia's role in the global supply chain as a key manufacturer of semiconductor products and other electronic components played a major role in sustaining export growth despite global economic challenges.
The services sector, which has become a significant contributor to Malaysia’s economy, also saw positive growth, driven by a rebound in tourism, retail, and financial services. This diversification of growth drivers has helped mitigate the impact of slower global growth and weaker commodity prices.
Domestic consumption remained strong, underpinned by stable employment and higher household income, which further fueled the economy’s expansion. Additionally, government measures such as the reduction in income tax rates and increased public spending helped to stimulate the economy.
Ringgit Outlook and Projections
The strengthening of the ringgit is a reflection of these solid economic indicators. According to Dr. Afzanizam, the local currency is likely to continue its upward trajectory if these trends persist. He believes that the ringgit could break through the immediate resistance level of 4.43 against the US dollar, driven by improved economic performance and a global shift in investor sentiment.
The chief economist emphasized that the ringgit's performance is linked to broader global trends, particularly in relation to the US economy. “There is a potential slowdown in US consumer spending, which could reduce the dollar's strength against other major currencies, including the ringgit,” he explained. With the global economy facing challenges, including the tightening of interest rates in advanced economies, the outlook for the US dollar is uncertain, which presents an opportunity for emerging market currencies like the ringgit to strengthen.
Moreover, Malaysia’s fiscal discipline and the government’s focus on strengthening public finances are expected to positively impact investor confidence in the ringgit. As long as Malaysia continues on this trajectory of stable fiscal policy, the ringgit should remain relatively resilient against fluctuations in the global financial landscape.
ASEAN Currencies: Regional Comparisons
The positive outlook for Malaysia’s economy is also reflected in its performance relative to other ASEAN currencies. The ringgit has strengthened against many of its regional counterparts, including the Singapore dollar and Thai baht, reinforcing the notion that Malaysia is emerging as one of the more stable economies in Southeast Asia.
However, while the ringgit has risen against the US dollar, it has slightly depreciated against the Japanese yen. This is due to the yen’s role as a safe-haven currency in times of global economic uncertainty. Despite this, the overall trend for the ringgit remains positive, with market participants closely monitoring global economic developments that could further support its value.
In terms of ASEAN currency markets, the region as a whole has faced headwinds from a strong US dollar and uncertain global economic conditions. Nevertheless, Malaysia’s continued economic expansion provides a buffer against these challenges, offering a relatively attractive investment climate in the ASEAN context.
Market Reactions to the Ringgit’s Rise
The ringgit’s rise against the US dollar has garnered positive reactions from financial analysts and investors. Stronger currency performance is typically welcomed by Malaysian businesses, particularly those involved in international trade. A stronger ringgit makes imports cheaper and reduces costs for businesses that rely on foreign goods and services.
For consumers, a stronger currency can have mixed effects. While the cost of imported goods, including fuel and electronics, may decline, Malaysian exporters may face challenges as their products become more expensive in international markets. However, with Malaysia’s diversified export base, this impact is likely to be moderated.
In the financial markets, the ringgit’s improvement has sparked interest from foreign investors, who are more likely to consider Malaysian assets such as equities and bonds. This is especially true given Malaysia's stable fiscal policy and growing economic sectors, making it an attractive destination for investment.
The Malaysian ringgit's upward movement against the US dollar, underpinned by stronger-than-expected GDP growth in 4Q24, marks a positive turning point for Malaysia's economy and currency. With continued fiscal discipline, improved economic fundamentals, and a stable growth outlook, the ringgit is expected to remain relatively strong in the coming months.
As Dr. Afzanizam aptly noted, Malaysia’s fiscal efforts and resilient economic performance could provide further support to the ringgit, especially as global economic uncertainties continue to evolve. “This shows that fiscal consolidation efforts are yielding promising results, which could be favorable from the credit rating agencies' perspective,” he said.
Looking ahead, investors will continue to watch Malaysia's economic performance closely, as further positive GDP growth and stability in key sectors could provide even more momentum for the ringgit. The combination of solid economic fundamentals, a supportive policy environment, and positive investor sentiment bodes well for Malaysia’s currency in 2025, reinforcing the country’s place as a key player in the ASEAN region.
As the global economy navigates challenges such as inflationary pressures, trade disruptions, and shifts in monetary policy, Malaysia’s ability to maintain its economic resilience will be critical to the ongoing strength of the ringgit.
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