Malaysia could take a hit as trade war escalates

International banks are expected to revise global growth to 3.5% and 3.6%, says expert


Malaysia’s economic growth could be revised downward as the rising US-China trade spat reaches new boiling levels and will likely derail global economic expansion.

Sunway University Business School economist Prof Dr Yeah Kim Leng said international banks are expected to revise global growth to 3.5% and 3.6% from the current estimates of 3.8% and 3.9%.

“I think there will be a slight downgrade in the global growth forecast due to the downside risks of escalating US-China trade tension. But it may not be so sharp because the tariff rate is only at 10%,” Yeah told The Malaysian Reserve.

Wall Street economists have recently maintained their forecast for the global economy at an average of 3.9% even as emerging markets (EMs) wobble and trade tensions rise.

The International Monetary Fund (IMF) had also, in its projection update in April, left global growth projection unchanged at 3.9%.

However, its forecast for the eurozone, Japan and the UK have been revised lower to reflect negative surprises in early 2018. The IMF noted that growth has become less synchronised among EMs and developed economies.

The US President Donald Trump administration slapped a 10% tariff on an additional US$200 billion (RM828.06 billion) worth of Chinese imports next week, ranging from food to fabrics to industrial chemicals.

Beijing has promised it would retaliate — ramping up tensions between the world’s top two economies — but countries like Japan has called for talks and warned of the potential damage to global growth.

Asian shares sank in the initial response to Trump’s announcement on Monday. The Shanghai Composite Index dropped to a four-year low of 2,651.79, while South Korea’s Kospi Index fell 0.66% to 2,303.01.

In the US, the Dow Jones Industrial Average lost 0.35% to 26,062.12, while the S&P 500 slid 0.56% to 2,888.80 and the Nasdaq Composite Index fell 1.43% to 7,895.79 on the same day. However, yesterday saw most of the world stock markets post a rebound, except Malaysia.

“The financial markets will be impacted. They will likely price in the negative impacts of the trade war on both trade and investment. That itself will result in the shaving off of some growth expectations due to the overall lower demand,” Yeah said.

The central bank had revised down Malaysia’s GDP growth to 5% this year from an earlier estimate of 5.5% to 6%.

Other estimates are less confident with growth rates ranging between 4.7% and 4.9%. Yeah said despite the long-term downside risks, the trade war also offers short-term benefits for Malaysia in the form of trade diversions.

“Importers from both the US and China may source from third-party countries. For example, chips imported from China could be sourced from Malaysia. We have already seen some signs where both countries are looking to move their production centres,” he said.