KUALA LUMPUR: The economy is set to encounter external headwinds in 2019, including the effects of the trade impasse between China and the US, according to OCBC Banking Group chief economist Selena Ling.
Speaking to the media after presenting OCBC’s market outlook talk here today, Ling said Malaysia as a trading nation depended heavily on the two countries as export destinations.
She said the US-China spat might translate to lower trade volume, which would be negative for Malaysia.
“Another external factor which will have a bearing on the Malaysian economy in 2019 is the Federal Reserve’s stance on interest rates,” she added.
The Fed increased interest rates four times in 2018 and had indicated that it would have three rounds of increase in 2019. However, in its latest meeting in December, the Fed turned less hawkish in line with concerns over the slowdown in the US economy.
If the Fed hikes interest rates, there will be fund outflows from emerging markets such as Malaysia, which will be detrimental to the economy.
Private consumption in Malaysia remained the engine of growth for the economy.
Ling also said GDP growth for 2019 may slow to 4.4% compared to a probable 4.5% in 2018.
On the fiscal side, the official forecast is for the budget deficit to hit 3.7% in 2018 before easing to 3.4% in 2019, 3% in 2020 and 2.8% in 2021. In the medium term, the government is expecting the deficit to be in the region of 2% of GDP.
Ling said she expects Bank Negara Malaysia (BNM) to maintain the overnight policy rate at 3.25% as inflation remains benign. A pause by the Fed implies no urgency for BNM to hike rates, and a rate cut would require the ringgit to tread a firmer path against the US dollar.
Ling expects the ringgit to stabilise by year-end against the US dollar. She projected the ringgit to trade at RM4 against the US dollar, mainly on the weakness of the US currency. - FMT
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