External challenges to persist in 2017, says economist

KUALA LUMPUR: External challenges will likely persist next year which will affect global trade brought on by uncertainties including the aftermath of the US election and the coming in of the new Trump administration, said Malaysian Rating Corp Bhd (MARC).

Its chief economist Nor Zahidi Alias said new policies that could be introduced by US presidentelect Donald Trump, and going by his rhetoric during the election campaign - could lead to retaliation by US’ trading partners or in the worst-case scenario, lead to currency wars.

“In addition, the recovery in commodity prices, especially crude oil, will be dented by a possible new policy of unloading shale production into the world market as proposed by Trump during his campaign,” he told Bernama.

On November 9, Asian currencies weakened in a volatile trading as Republican Trump unexpectedly defeated heavily favoured Democratic rival Hillary Clinton in the US presidential race, causing a huge sell-off in the US and global markets.

His unexpected win prompted investors to flee to safe-haven assets.

Against such a background, “it is very possible that volatility across the global financial markets will remain at high levels as we conclude 2016,” FXTM vice president of Market Research Jameel Ahmad told Bernama.

He added that the world had just experienced what will be remembered for generations to come as a political shock and it has added to other external uncertainties such as the European Union referendum outcome, slowing global growth and prolonged weakness in oil prices.

Meanwhile on the domestic front, Nor Zahidi said challenges would likely come from the fact that consumers may start to be cautious in view of the weaker labour market going forward.

Notwithstanding this, overall headline gross domestic product (GDP) growth would likely remain decent and MARC had anticipated a 4.0 per cent growth in 2017, he said.

The rating agency also maintained a real GDP growth target of 4.1 per cent for 2016 amid external and internal economic headwinds.

Malaysia’s economy expanded 4.3 per cent in the third quarter against four per cent in second quarter of this year, mainly driven by domestic consumption and net exports. — Bernama