Trade war to hit local exports harder in 2019

: The knock-on impact of the US- trade war on ’s exports will be felt more strongly in 2019, resulting in a trimmed economic growth forecast for the country next year, according to global accounting institute ICAEW economic advisor Sian Fenner.

ICAEW anticipates Malaysia’s gross domestic product (GDP) growth to ease to 4.5% next year, from 4.8% in 2018 as a result of the ongoing trade conflict and tighter global monetary conditions.

“(Malaysia’s) exports have been quite resilient this year despite the trade conflict, but going into 2019, we are expecting more of the knock-on impact on the Malaysian exports,” Fenner told reporters after presenting the latest ICAEW report “Economic insight: South-East Asia” today.

“In line with our simulation of US-China tariffs, we expect with the closest ties to China to experience the hardest hit in a trade war, whether through direct or indirect export,” she added, noting Malaysia’s total exports to China accounting for 10.7% of the GDP last year.

Additionally, Fenner said despite any temporary boost to exports, the cooling import demand and trade protectionism are projected to weigh on the country’s exports, but domestic demand in Malaysia will provide some relief, albeit some of the factors underpinning the strong growth in household spending seen in 2018 are set to fade.

“Higher (due to Goods and Services Tax abolishment) and tightening of policy rates, as well as financial stability considerations, arising from higher US interest rates are also likely to moderate demand,” she added.

On fiscal profile, Fenner expects the fiscal deficit to come in at 3.5% of GDP next year, slightly higher than the government’s target of 3.4%, reflecting a more cautious outlook for GDP growth over 2019-2020, and a likely delayed effect of a potential boost to revenues from new taxes announced in Budget 2019.

Nonetheless, ICAEW expects Malaysia to maintain its credit rating, supported by the government’s efforts to restore public finances and debt, in terms of the fiscal deficit over the medium term.

Other factors that support Malaysia’s positive credit ratings include lower interest rate payments as a share of revenue following Japan’s announcement to support Malaysia’s ¥200 billion yen (RM7.3 billion) “samurai ” issuance, improved transparency and governance standards.

Meanwhile, Deputy Minister of International Trade and Industry Dr Ong Kian Ming, who is also a panel member at the programme, said the country’s export was not negatively impacted by the US-China trade war, but noted that there have been some reductions in imports.

Source: The Sun Daily

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