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A full-blown trade war could drag Malaysia’s gross domestic product (GDP) growth to 3.2% this year, from an earlier projection of 4.7%, according to Affin Hwang Investment Bank Bhd head of research and chief economist Alan Tan. Tan said if the trade spat between the US and China were to escalate to a situation where tariffs are fully implemented on all Chinese goods, Malaysia’s GDP growth could be hit closer to 1.5 percentage point.
“If Malaysia’s GDP is at 5%, the 1.5% will push the GDP growth down to 3.5%,” he told reporters at the press conference in conjunction with the bank’s launch ceremony of its Securities Borrowing and Lending (SBL) facility for retail investors yesterday.
“Malaysia is an open economy and is still relying on trade. As we know, China today is the major market for Malaysia and if the global trade war were to escalate, we think that the Chinese economy, which has already shown signs of slowing down, may slow even further.
“Therefore, we are of the view that Malaysia’s exports to China will be slowing down towards the second half of 2019 assuming if the trade war continues to drag on,” he added.
However, Tan said domestic demand will continue to support the economic growth this year driven by several measures introduced by the government in Budget 2019, supporting the bank’s forecast on the GDP growth at the region of 4.7% this year.
Additionally, he said that the bank opined that this time around, both US and China will be more willing to negotiate and possibly come out with a trade compromise by end of the first quarter this year, in view of the external uncertainties and weaker business sentiment.
“Going into 2019, we already seeing signs of slowing down in the US and China. Unlike six months ago, where both economies continue to do relatively well,” he noted.
Therefore, he said the bank believes that in the second half of 2019, following the resolutions of the global trade war, coupled with the weakening US dollar, interest will come back to the emerging market, including Malaysia.
However, Tan said the bank expects that the market will remain flat in the first half of 2019 and looking at end-2019 target for the FBM KLCI at 1,810 points.
On ringgit, he said the local currency is expected to appreciate to RM3.90-RM4.00 level in the second half of 2019, and possibly ending the year at RM3.90 against the US dollar, as the greenback is likely to soften towards the second half of the year.
