This article first appeared in Forum, The Edge Malaysia Weekly, on December 7 - 13, 2015.

IT sure looks gloomy out there. And I am not talking about the current rainy weather in the Klang Valley. I am referring to the global and Malaysian economic outlook for next year and beyond, as painted by some quarters and the media.

Of course, much of it has been discussed over and over again. The argument is that the bleak prospects for the global economy, in particular China and some emerging economies, will exert immense pressure on the Malaysian economy. This is logical because China — now the second-largest economy in the world and Malaysia’s largest export destination — is struggling to manage its economy to avoid a hard landing and ensure economic imbalances are addressed in a smooth manner.  A weak China spells trouble for an export-dependent country like Malaysia and could also increase the chances of another round of renminbi devaluation, which would then affect the ringgit, judging from historical experience.

Another worry relating to the health of China’s economy is its role as a driver of demand for global commodities. China consumes the bulk of global crude oil and other construction-related commodities from countries such as Australia and Brazil, which depend heavily on these commodities for their export receipts. A wobbly China is grim news for global commodity prices. For a country like Malaysia, whose revenue is highly dependent on oil-related income, sluggish crude oil prices heighten the risk of not meeting its budgetary targets in the coming years. Of significant concern, of course, is the budget deficit target, which has come under the scrutiny of sovereign rating analysts.

Other concerns are related, including the rising volatility of capital flows, which has evidently taken a toll on the ringgit. At the time of writing, the ringgit was 18% weaker than it was at the end of 2014. Anxieties over the US Federal Reserve’s possible rate hike this month are already dragging regional currencies down to levels not seen in many years (the rupiah by 11% and the Aussie dollar by 12%). As for the ringgit, downward pressure is emanating from various sides, for example possible further strengthening of the US dollar on the back of an eventual rate hike, weak crude oil and natural gas prices, Malaysia’s sinking current account surplus due to anaemic global demand, lingering budget deficits and the withdrawal of foreign portfolio capital. All these forces seem to be at play, at least at this juncture.

But aren’t there any risks to this gloomy scenario? Interestingly enough, the risk could well come from the overly pessimistic view of the global economy itself. Imagine for a moment an alien observing the global economy from outer space and coming up with several conclusions. Relatively speaking, it will see significant differences between current global economic conditions and the ones in 1998 and 2008. The world’s largest economy is still expanding, and probably at a stronger pace too, despite some weak spots in its labour market (low participation rate and high underemployment). Europe is chugging along with policies that are now focused on ensuring greater support through unconventional monetary policy.

Our alien friend will also notice that China’s economic strength is sustained at about 6% to 7% per annum — very decent indeed, considering that it is the second largest economy in the world. Earth people have been spoilt by China’s 10% growth in the past — a 6% to 7% growth is not catastrophic to the world economy, it will conclude. The country’s strong ammunition against an abrupt slowdown is a plus point but its leaders are understandably unwilling to unleash such forces for fear of creating another bubble. Nevertheless, China is capable of engineering sustainable growth without fuelling another round of economic imbalances.

Malaysia’s current economic conditions, while remaining on the downward trend, are nowhere close to those seen in 1998 or even 2008. Again, our alien friend will nod, admitting that while it is true that consumers are being assailed from different angles, for example, the Goods and Services Tax (GST), rising home prices and stricter access to credit, such factors will also alleviate the lingering problem of high household indebtedness, which, if not properly controlled, will result in even greater economic chaos in the future. Short-term pain no doubt but a long-term cure for a bigger problem, our alien friend could surmise.

Admittedly, the ringgit will still be under pressure. And with the scenario that is unfolding at this juncture, Malaysians would have to brace for even more weakness to come, especially in the short term. The risk of a further slide in crude oil prices will also heighten concerns about the ringgit’s future trend. This is to be expected. But then again, currency volatility is largely influenced by the short-term views of financial market players, whose major focus is none other than quick profits. Going beyond a short-term time frame of one or two years will likely change the story. This is especially true if commodity prices start to pick up.

Our alien friend could, in the final analysis, say that the risk of a bleak 2016 is that Earth people will suddenly wake up to realise that the situation was even grimmer only a few years back. Humans tend to forget that. The world’s largest economy was on the verge of collapse and Europe was reeling from a massive banking crisis two to three years later. Conjectures of a repeat of the Great Depression were regularly featured in the media globally and people were preparing for an Armageddon. On the contrary, economies and financial markets today are more benign — relatively, of course — although they keep chugging along without the strength seen prior to the global financial crisis. With China unlikely to collapse and Uncle Sam humming away, commodity prices may not sag as much as some Earth people fear. When it gets to the crunch, the Middle Eastern powers will likely get their act together to manage crude oil supply on the back of rising commodity demand, as seen in the past two years.

As for Malaysia, we might feel the pinch next year but will not likely see the Armageddon scenario, as painted by some quarters. This is what our alien visitor may conclude and this is what we can certainly hope for beyond 2016.

Nor Zahidi Alias is chief economist at Malaysian Rating Corp Bhd

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's AppStore and Androids' Google Play.