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Wednesday, 11 July 2018

(The Star) Think tank says Malaysia's GDP growth could drop to below 4% next year

KUALA LUMPUR: The growth rate of Malaysia’s gross domestic product (GDP) could fall to below 4% in 2019 if the United States and China continue to hike tariffs on a wider range of imports from each other.

Socio-Economic Research Centre (SERC) executive director Lee Heng Guie cautioned that Malaysia’s economic performance could be “substantially affected” if the trade war worsens, as both the US and China are the country’s major export markets.

However, it is too early to gauge the real impact on the domestic economy, he said.

The trade war between the world’s two largest economies started officially on July 6, as the US enforced additional tariffs on US$34bil worth of Chinese imports. Tariffs on another US$16bil worth of imports will be imposed in two weeks’ time.


In an apparent tit-for-tat response, China retaliated with similar tariffs on US$34bil US imports also on July 6, with tariffs on other imports worth US$16bil to be levied at a later date.

Last week, US president Donald Trump threatened that he was prepared to slap tariffs on over US$500bil worth of goods from China – roughly the amount that the US imported from China in 2017.

Despite the rising trade tension globally, Lee pointed out that the impact on Malaysia was small for the time being, buttressed by the country’s economic fundamentals.

“The tit-for-tat trade war among the major economies would inflict damage to the global economy and trade. Malaysia will be affected via the global supply and value chains though at this current state, the impact is manageable.

“We lowered our export growth estimate to 6.5% this year from 7.5% previously, in contrast to the 18.9% growth registered in 2017,” he told reporters during SERC’s quarterly economy tracker briefing for the second quarter of 2018.

The think tank expects the economy to expand by 5.4% in the second quarter, similar to the growth seen in the first three months of 2018.

As for the full-year forecast, SERC has revised downward its GDP growth forecast for 2018 to 5.2% from 5.5% previously, in view of the external headwinds and the implications of domestic political developments.

However, Lee said the country’s economy would continue to be sustained by domestic demand and exports.

“Malaysia’s economic growth in the second half of 2018 will likely be slower compared to the first half. Private consumption is expected to remain resilient at 6.9%.

“However, as for private investment growth forecast, we have lowered our estimate significantly from 8.3% previously to only 3%.

“This is because the numbers for the first quarter were very discouraging, partly because of the 14th general election (GE14) and the lingering uncertainties, causing investors to become more cautious,” said Lee.

On the ringgit, he expects the local note to trade between RM4 and RM4.10 against the US dollar by end-2018.

The ringgit has weakened by 4.3% against the US dollar since end-March, after gaining 4.8% in the first quarter of 2018.

The currency’s depreciation was largely due to GE14, the net selling of domestic equities and bonds, surging US Treasury yields and the revived strength of the US dollar, among others.

“What could provide a counteract strength to support the ringgit are strong economic and financial fundamentals, the clarity of policies, the fiscal and debt path and the affirmation of Malaysia’s sovereign ratings,” added Lee.