Strong fundamentals, better transparency to support ringgit
KUALA LUMPUR: United Overseas Bank (M) Bhd (UOB Malaysia) expects the ringgit to move in tandem with other Asian currencies amid the volatile external environment and escalating US-China trade conflict.
“However, Malaysia’s strong fundamentals and move towards better governance and transparency are likely to provide underlying support for the ringgit and will help to moderate the currency’s volatility,” its senior economist Julia Goh said in a statement.
She said despite the ongoing US Federal Reserve interest rate increases lifting the US dollar and the volatility in global oil prices, “we expect pressure on the ringgit to materialise at a gradual pace”.
The government’s efforts to build a more transparent government, the economy’s underlying strengths, steady economic growth, low unemployment and a surplus current account would help support the ringgit, she said.
Goh said UOB Malaysia remained positive on the country’s economic outlook for 2019, despite expectations for greater external risks arising from global trade disputes and heightened market volatility.
She acknowledged that the ongoing US-China trade tensions and the quantum of US Federal Reserve interest rate rises would continue to have an impact on global growth and market volatility.
“There are no signs of US-China trade tensions easing. Further protectionist trade policies will undoubtedly be negative for global trade, leading to greater risks for export-driven Asian economies, including Malaysia, amid weaker growth prospects and heightened volatility in financial markets.
“Given these developments, we expect the impact of broadening trade measures resulting from the trade tensions will be felt more materially in 2019.”
Although Malaysia is not immune to the global headwinds, she said the economy would find support from robust domestic private consumption and investments.
Goh also pointed out that Malaysia’s Budget 2019, unveiled on Nov 2, also delivered some positive fiscal measures to reinforce consumer spending, to promote inclusiveness and to boost growth.
She said private consumption was expected to be supported by higher minimum wages, targeted cash aid and petrol subsidies.
The repayment of tax refunds is likely to improve cashflows for the private sector and to encourage domestic spending.
The government is also emphasising on advancing high value-added sectors such as technology-intensive industries, accelerating the digital transformation of the manufacturing sector through its Industry 4.0 initiative, and on targeted infrastructure spending.
“These are right steps to ensure that Malaysia stays competitive in the region and across the world. We project real gross domestic product to expand 4.8% in 2018 and 2019,” she said.
Over the long term, Goh said Malaysia’s economy stood to benefit from the government’s ongoing efforts to improve transparency and accountability, which would strengthen investor confidence over time.
She expects the country to likely to benefit from regional and multilateral trade initiatives that will boost development of, trade with and investment in the country and across Asean.
These strategies would help enhance the country’s resilience against risk from rising global trade protectionism.
Over the medium term, UOB Malaysia expects the economy to continue on its growth path, given its strong fundamentals and ongoing policy reforms to stimulate growth.