Under the presidency of Kamala Harris, the ringgit is expected to depreciate at a “very manageable” rate of 2% to 3%.
KUALA LUMPUR: The chief economist of the world’s largest insurer cautions that the ringgit faces a risk of steep depreciation next year, should Donald Trump win the presidential election.
Ludovic Subran, chief economist of the German insurer Allianz SE, expects the ringgit to depreciate by 5% to 10% by end-2025 under Trump as US presidency.
Meanwhile, under the presidency of Kamala Harris, the ringgit is also expected to depreciate, albeit at a “very manageable” rate of 2% to 3%.
The ringgit has weakened by about 5.5% against the US dollar, reaching 4.35 yesterday.It turned weaker amid expectations that the Federal Reserve (Fed) would temper its interest rate cut path and the latest Wall Street Journal poll of registered voters which shows Trump is leading Harris 47% to 45%.
Subran noted that Trump’s proposed policies – including a blanket tariff of 10% to 20% on all imports – are inflationary in nature and as a result, the Fed may not cut its interest rates as much as expected.
This in turn may cause an outflow of foreign funds out of emerging markets, including Malaysia, causing currencies to weaken as the US dollar gains strength.
“Under Harris, the ringgit may weaken by 2% to 3% and then stay stable by the end of 2025. The main concern is Trump because there will be further devaluation (of the ringgit),” Subran told reporters here yesterday following his visit to Allianz Malaysia
.If Trump returns to the White House, Subran said the federal funds rate (FFR) –the US equivalent of Bank Negara’s overnight policy rate – would hover around 4%, instead of being reduced further to 3.5%.
Currently, the FFR stands at a range of 4.75% to 5%.
“If the Fed stops cutting the FFR, the other central banks will also be stuck from cutting their rates. The global financial cycle will then be affected.”
On another note, Subran said the implementation of China’s aggressive stimulus measures announced in September would benefit Malaysia.
China is Malaysia’s largest trading partner.According to Subran, actual delivery of the fiscal stimulus could lead to between US$72bil and US$115bil of additional imports by China in 2025.
“For Malaysia, it could be US$2bil worth of additional exports in 2025 to China.”
Among the stimulus measures announced were the pumping in of 800 billion yuan to strengthen China’s stock market and the reduction of cash amount commercial banks are required to hold in reserves.
This would inject about one trillion yuan into the financial market as banks are able to lend out more.
Subran also highlighted China’s greater transition towards the green economy through exports of electric cars, batteries, solar panels and others.
“Since Malaysia is also involved in the Chinese supply chain, there are many opportunities in the green transition for Malaysian manufacturers going forward.
“China will need to create a supply chain across the South-East Asian region to be able to supply to the rest of the world.
“Out of the US$2bil additional exports for Malaysia coming from China’s stimulus, two-thirds of them will be in these sectors,” he said.
On the Malaysian economy, Subran also said that the gross domestic product (GDP) is forecast to grow by 4.8% in 2024, before settling at a robust 4.2% in 2025.
Economic activity has been dynamic, thanks to improving exports and resilient domestic demand, he said.
However, on the fiscal deficit forecast for 2025, Subran opined it would be at 4% of GDP, slightly higher than the government’s target of 3.8%.
“The 3.8% target looks feasible, but the main issue is it would be very difficult to cut subsidies on RON95 petrol. This is because the subsidies amounted to 3.6% of GDP in the second quarter of 2024 (2Q24) as compared to 1.8% in 2Q19.
“This is a huge variation even though the oil price is not that high. So, even if you withdraw some of the fuel subsidies, I don’t think you can get as much relief on the budget as you expect,” he said.
