A Not-So-Happy New Year for Malaysia’s Economy And Ringgit

The New Year looks to be a not-so-happy one for Malaysia’s economy and the Ringgit.

First, there will be a slowdown. The Government is expecting the economy to grow by 4% to 5% in 2016, compared to 4.5% and 5.5% in 2015.  The margin might seem small, but for a small nation like Malaysia, the difference could be crucial.

Economists are also less-than-upbeat about the new year, with many foreseeing the rising cost of living to become a serious issue among Malaysians, especially as wages stagnate – a primary concern for many salaried employees.

Independent economist and former CIMB Investment Bank Bhd chief economist Lee Heng Guie told The Star that his main concerns include a potential drop in consumer spending and private-sector investment. This could severely impact the economy as private consumption makes up about 52% of the economy.

Lee said improving exports due to a weaker Ringgit would not help. “We may see some currency translation (from goods priced in stronger currencies translated into the weaker Ringgit) but this effect could be neutralised in the second-half of the year.”

The Ringgit’s outlook remains bleak despite the certainty of US monetary policy. This is because the currency’s performance is largely still tied to the direction of crude oil prices. The global oil benchmark, Brent, has traded as low as between US$36 and US$38 per barrel in recent weeks.

Analysts say oil prices may not trade above US$50 in 2016. Meanwhile, International Monetary Fund managing director Christine Lagarde was quoted saying that oil prices could go as low as US$20 a barrel.

Meanwhile, Maybank Investment Bank Bhd chief economist Suhaimi Ilias said in an interview with The Star that if crude oil price continues to fall, there will be a risk of a bigger deficit for the federal budget. This could put a damper on the Ringgit.

Suhaimi does not believe the Ringgit will go back to the RM3.80 level against the US dollar in the near future. The market expects the Ringgit to average 4.40 to the greenback with the consensus ranging at between RM3.90 and even RM5.00.

There is nothing you can do about the weakening Ringgit, but you can make your money work harder for you by using the right credit card.

[Source]