The ringgit has been one of the worst-hit currencies in Asia and its value decreased by about 20% to a 17-year low in 2015, causing the price of imported goods to rise.
The ringgit has declined to about RM4.30 to the US dollar currently, from about RM3.50 a year ago.
The value of the ringgit is dependant on several factors, namely the strength of the Chinese renminbi, the strength of the American dollar, and the price of commodities, especially crude oil.
The price of crude oil has fallen from around US$100 in July 2014 to around US$35 (about RM420 to RM150) currently because of an oversupply in the market.
According to Prime Minister Datuk Seri Najib Tun Razak while tabling the 2016 budget, the contribution from Petronas and oil-related sectors was RM44bil in 2015 compared to an estimated RM31.7bil this year.
Economist Dr Yeah Kim Leng says China’s weak growth and weak commodity prices have also resulted in the ringgit’s decline. “There will be further pressure on the ringgit if commodity prices fall further,” he says.
However, Dr Yeah – who is also the Dean of Business at the Malaysia University of Science & Technology – adds that there are enough reserves to cover the depreciation of the local currency.
One concern for the man on the street would be job uncertainty, says Dr Yeah, as more mutual separation schemes and downsizing exercises are expected to be part of companies’ cost-cutting measures in their strategies to be more competitive.
Once again, this means that consumers have to prioritise according to their needs.
In terms of GDP, the World Bank has projected a 4.5% growth rate in 2016 for Malaysia, down from 4.7% last year.
“The outlook reflects some slowdown in domestic demand in 2015 from tighter fiscal conditions, which are expected to continue in 2016. As a result, private consumption growth will moderate from 7.0% in 2014 to 5.3% in 2015 and 2016, affected by the slowdown in disposable income, and a soft labour market,” read a report by the World Bank in December.
On a positive note, Dr Yeah says that the export sector is improving and that export-oriented industries such as rubber gloves and electronics will be competitive as they benefit from a weak ringgit.
Malaysia’s exports surged 16.7% in October to RM75.8bil, the fastest increase since May 2014.
Another sector that is expected to do well this year is tourism with the Government targeting 30.5 million tourists to generate RM103bil for the economy.
Other sectors that could see growth include healthcare and education.
As for the stock market, CIMB Research predicts it will recover after the KLCI’s decline for two years in a row.
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