Global Economy: Stability is expected in 2025 as emerging economies normalise activity after peaking growth in 2024. Advanced economies face slower growth due to the lagged impact of high interest rates.
Risks: Likely to come from the impact of a renewed trade war between the US and China. Furthermore, sluggish recovery in China's recovery may limit any upside to global economic growth. Nevertheless, faster growth from other emerging economies, such as India, may continue to lend support.
Inflation Outlook: Global inflation is set to resurface in 2025, driven by potential US tariffs under Trump, ramping up consumer prices and strainning supply chains. Geopolitical tensions and climate change add to uncertainties. While inflationary pressures are likely, central banks are expected to slow rate cuts rather than reverse course.
Monetary Policy: Major central banks will mostly lean towards easing. The Fed is expected to continue cutting rates cautiously amid Trump uncertainties. The ECB is likely to ease further, the BoE is set for gradual cuts due to stagnation, and the PBoC may reduce rates to stimulate demand. The exceptional would be the BoJ, which is expected to hike rates twice this year.
US Treasury (UST): Long-term UST yields are expected to remain high in 2025, driven by robust economic data, fiscal uncertainties under Trump, and investor adjustments to a ~4.0% Fed policy rate. While geopolitical risks and softer inflation may slow the rise, the 10-year yield is projected to reach 4.67% by end-1Q25 and 4.88% by year-end.
Malaysia's Economy: GDP growth is projected to moderate slightly to 4.8% (2024E: 5.0%). Domestic demand will anchor growth while services and manufacturing sector recovery will continue to support growth momentum amid various policy support. Nevertheless, downside risks from the external sector are expected to persist.
Inflation in Malaysia: Expected to rise to 2.7% in 2025, driven by subsidy reforms, wage growth, and external pressures. Rationalisation of RON95 subsidies and higher wages will be key drivers, while subdued oil prices in 1H25 and China's export redirection may offset some impact.
BNM Policy Direction: Bank Negara Malaysia (BNM) is expected to maintain the overnight policy rate (OPR) at 3.00% in 2025, balancing inflation risks with growth support amid ongoing reforms by the Madani government.
Ringgit Outlook: The ringgit is expected to remain resilient despite challenges and uncertainties from incoming Trump's policies. Weakness in 1H25 (4.50-4.60/USD) may give way to recovery in 2H25 (4.40-4.50/USD) as the Fed eases more than expected. Domestic fiscal consolidation and BNM's stable monetary policy should support the ringgit, with a year-end target of 4.45/USD.
Malaysian Government Securities (MGS): Demand for local bonds is projected to drop due to global uncertainties, with foreign investors pulling back. Bond issuance is expected to decline to RM165.0b-RM170.0b. Hence, 10-year MGS yield is projected to hover around 3.85% in the near term, rising to 3.91% by 1Q25, and 3.98% by year-end, reflecting the direction of US Treasury yields and Trump's policies.
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