This article first appeared in The Edge Financial Daily on November 23, 2018

KUALA LUMPUR: UOB Malaysia has projected the ringgit to slide to 4.22 against the US dollar next year, with external factors continuing to dictate the currency.

These factors include the US interest rate trajectory, volatility in the renminbi and oil prices, said its senior economist Julia Goh.

As of writing, the ringgit was trading at 4.1960 against the greenback.

Goh added that the ringgit is also supported by the sustained current account surplus maintained by Malaysia. She said a current account deficit is unlikely to happen thanks to the government’s decision to defer or cancel some of the mega infrastructure projects.

“When [we] take away these projects, [we’re] more confident that the current account surplus can be sustained on a quarter-on-quarter basis and could then provide an underlying support for the ringgit,” she told a media briefing on Malaysia’s economic outlook.

Goh said the country’s economic outlook is expected to remain positive next year, despite expectations of intensifying trade disputes and policy uncertainty which may result in a slower global growth.

Malaysia, she said, will find support from a robust domestic private consumption and investments despite the country not being immune to global headwinds.

UOB Malaysia’s real gross domestic product growth projection is at 4.8% for both 2018 and 2019.

Goh said the services sector, including information technology, communication, transportation and logistics, is expected to outperform in 2019 on the back of better e-commerce.

The sector has been achieving a resilient growth in this year’s quarters, and is expected to maintain the momentum going into next year, she said.

On inflation, Goh projected the rate to be 2% for next year, compared with an estimated 1.2% this year.

She added that the nation’s overnight policy rate is expected to remain unchanged at 3.25% for the first half of 2019.

Meanwhile, the average crude oil price is expected to stay at US$75 (RM313.32) to US$80 per barrel mainly due to US sanctions on Iran oil exports, said Goh.

In addition, the ongoing US-China trade tension remains a main concern as it has 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,” Goh said.

The UOB economist also noted that US President Donald Trump may not want the oil price to spike as it will have an impact on inflation, causing the US Federal Reserve to raise interest rates more aggressively.

Furthermore, if the oil prices were to continue to slide, she said the government may need to recalibrate the budget, but added that it is still too soon to have any revision as commodity prices as well as currencies are very volatile now.

As of writing, brent crude futures was down 1.2% at US$62.72 per barrel.

Going forward, Goh said US-China trade tensions remain a main concern, and there are still no signs of it 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.