KUALA LUMPUR (Oct 24): German insurer Allianz SE expects Malaysia’s economic growth to slow to 4.2% in 2025, from a projected 4.8% growth in 2024, amid a decline in consumer spending.
The projection is largely based on Bank Negara Malaysia's monetary policy, which is expected to remain tight in 2025 with the overnight policy rate anticipated to be kept at the 3% level, said Allianz chief economist Ludovic Subran.
Allianz’ economic growth projection is lower than the Ministry of Finance's (MOF) forecast of a 4.5% to 5.5% growth for 2025. The MOF expects Malaysia's gross domestic product (GDP) to grow between 4.8% and 5.3% in 2024.
Subran said the central bank’s decision not to loosen its monetary policy is creating the so-called “Ricardian effect”, where people tend to save more money than consume.
“There is also not much capex [for private investment] due to Malaysia’s central bank not cutting [interest rate] enough. All of that together is leading to our GDP forecasts being lower than the government’s projection for 2025,” he said at the Asia-Pacific Economic Outlook 2024 on Thursday.
On a positive note, Subran said Malaysia, being a trading partner of China, is set to benefit from Beijing’s fiscal stimulus programme.
China’s fiscal stimulus could lead to between US$72 billion (RM312.63 billion) and US$115 billion of additional imports in 2025, with potential positive spillover to Malaysia’s export sector.
Ringgit faces depreciation pressure under new US president
Subran said the ringgit is set to face a depreciation risk against the US dollar, particularly if Republican Party nominee Donald Trump is elected in the Nov 5 US presidential election, with projections indicating a decline of between 5% and 10%.
In contrast, if Democratic Party nominee Kamala Harris wins, a more modest depreciation of around 2% to 3% is expected, he said.
“The exchange rate would remain volatile. Under Trump, the US dollar will be significantly stronger, affecting all currencies,” Subran said.
He added: “US inflation could rebound if Trump wins the presidential election, subsequently leading to the US unable to cut rates aggressively."
The ringgit has depreciated nearly 5% against the US dollar so far this month. At 5pm, the ringgit stood at 4.3250 against the greenback, compared to 4.1215 on Sept 30. Nonetheless, the ringgit has appreciated 6% against the US dollar year-to-date.
'Cautious stance on infrastructure spending amid external uncertainties is wise'
In light of the uncertain environment, particularly concerning potential risks associated with a possible second Trump presidency, Subran has expressed support for the Malaysian government’s cautious approach to infrastructure spending.
He acknowledged the necessity of postponing mega infrastructure projects to address the nation's twin deficit situation and to mitigate financial risks.
Subran said that given Malaysia's relatively high household debt levels, it is prudent for the government to postpone large-scale infrastructure projects that could further strain public finances.
"This approach ensures that the government is not left vulnerable should international headwinds affect the Malaysian economy,” he said, adding however that there should not be an indefinite delay in infrastructure development as the existing infrastructure gap in Malaysia is huge.
Prime Minister Datuk Seri Anwar Ibrahim, when tabling Budget 2025 last week, said now is not the time to implement mega projects.