Trade war could further weaken Malaysia’s economy
Standard Chartered cuts growth forecast for 2018 to 4.8%
KUALA LUMPUR: Malaysia could be among the top-three countries in Asia to be most negatively affected by the trade war between the United States and China if the hostilities continue to worsen, according to Standard Chartered.
The bank’s chief economist for Asean and South Asia, Edward Lee, cautioned that the trade dispute between both countries could further weaken Malaysia’s economic performance, which has already been moderating in recent times.
The country’s gross domestic product (GDP) grew weaker than expected at 4.9% in the first half of 2018 due to supply-side disruptions, apart from the technical “high base” effect.
“If the US goes ahead with the 25% tariff on the next US$200bil Chinese imports and you add in the previous 25% on US$50bil worth of imports from China, the potential impact on China’s growth could be 0.6 percentage points and that is massive.
“This could (translate into) a 0.3 percentage point impact on Malaysia’s GDP growth,” Lee said during a media briefing yesterday.
As for the economic performance in the second half of 2018, Lee did not discount a potentially slower growth for Malaysia, given the rising external headwinds, moderation in growth drivers such as investment and government spending as well as negative trade sentiment.
Considering the key risks facing the domestic economy, Standard Chartered has slashed its economic growth forecast for Malaysia in 2018 to 4.8%, down from its earlier forecast of 5.3%.
On the ringgit, Standard Chartered foreign exchange strategist for Asean and South Asia Divya Devesh expects the local currency to trade at RM4 per US dollar by end-2018.
He said the ringgit is the second-most undervalued currency across emerging markets, based on Standard Chartered’s in-house model for currency valuation. Divya added that the ringgit continued to be attractive from a valuation standpoint for foreign investors.
“Apart from that, if you look at the year-todate performance across Asia, the ringgit is the second-best performing currency, just after the baht. The ringgit has clearly outperformed its peers in Asia and more broadly in the emerging markets as well.
“We think that the performance would continue,” he said, adding that the ringgit is expected to trade at RM4.10 against the greenback by end-2019.