A challenging year for economy and ringgit

PETALING JAYA: The new year is going to be a challenging one as far as the economy is concerned.

There will be a slowdown. The Government expects the economy to grow by 4% to 5% next year, down from the 4.5% to 5.5% this year. The difference in numbers may seem small but for a small country like Malaysia, it could be crucial.

Many analysts have been less-than-upbeat about growth too. Independent economist and former CIMB Investment Bank Bhd chief economist Lee Heng Guie expects the economy to grow by 4% to 4.5%. Economists said the higher cost of living would be a major issue with stagnant wages – the chief worry for many salaried workers.

“I’m more cautious about next year,” Lee said.

His worries include the drop in consumer spending and private-sector investment which would have an impact on the economy since 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,” he added.

The ringgit’s outlook remains “cloudy” despite the certainty of US monetary policy. Analysts say the currency’s performance will still be tied to the direction of crude oil prices. The global oil benchmark, Brent, has traded in the US$36 to US$38 per barrel range in recent weeks.

Analysts say oil prices may not trade above US$50 and Inter­national Monetary Fund managing director Christine Lagarde, who expects a challenging 2016 for the global economy, was quoted as saying that prices could go as low as US$20 a barrel.

Maybank Investment Bank Bhd chief economist Suhaimi Ilias said recently the ringgit still faced downward pressure although there would not be any drastic decline.

“If crude oil price falls, there would be a risk of a bigger deficit (for the federal budget) and that could be a dampener for the ringgit,” he pointed out.

Suhaimi does not believe the ringgit would go back to the RM3.80 level against the US dollar any time soon. The market expects the ringgit to average 4.40 to the greenback with the consensus ranging at between RM3.90 and even RM5.00.