KUALA LUMPUR: Capital flows into emerging markets (EMs), including Malaysia, are likely to be shaped by factors such as U.S. foreign policy—especially in diplomacy and trade—China's economic trajectory, global monetary policy dynamics, and geopolitical developments.
According to UOB Global Economics and Markets Research, the gradual implementation of tariffs by the Donald Trump administration, beginning in the second quarter of 2025 (2Q25) and continuing into the first half of 2026 (1H26), is expected to slightly slow global economic growth.
However, the recovery is projected to be uneven, with differing effects across sectors and regions, it said in a note.
"The rise in tariffs will also weigh on US gross domestic product (GDP) growth and push US inflation higher above the Fed's 2.0 per cent target in 2025 and 2026, prompting the US Fed to end its rate cutting cycle earlier than we had previously anticipated.
"We now project a total 75 basis points (bps) of Fed rate cuts in 2025 and the last cut to be in 3Q25 (vs previous est: 100bps in 2025 followed by the last cut of 25bps in 1Q26) with a terminal rate of 3.75 per cent by end third quarter of 2025 (3Q25)," UOB said.
UOB said reflecting its revised Fed outlook and higher sensitivity of Asia foreign exchange to US tariffs, it now expects most Asia foreign exchange including the ringgit to weaken alongside the CNY in the first three quarters of 2025 before rebounding in 4Q25.
"Trump's tariffs are likely to exacerbate the existing concerns about China's economic slowdown and hence, it is teeing up to be yet another difficult year for both China's economy and the Chinese New Year (CNY) in 2025.
"With that, our updated US dollar to ringgit forecasts are now at 4.53 in 1Q25, 4.60 in 2Q25, 4.65 in 3Q25 and 4.55 in 4Q25," it added.