KUALA LUMPUR, August 6 — The trade war between China and the US which is gaining momentum could drag the growth forecast of Malaysia, according to The Star.

Quoting a research report from Singaporean bank DBS, the report said that a full-blown trade war could cause Malaysia’s gross domestic product (GDP) growth for 2019 to fall down to 3.7 per cent, from an earlier projection of 5 per cent.

Maybank Investment Bank also concurred with the findings of DBS.

"Our sensitivity analysis (a way to predict the outcome of a decision with a certain range of variables) indicates that a 1 percentage point drop in world trade growth will shave 0.7 percentage point off Malaysia’s GDP growth,’’ Suhaimi Ilias, group chief economist, Maybank Investment Bank told The Star.

The trade war adds to Malaysia’s woes as the nation is already facing mounting debts and a potential shortfall of revenue from the implementation of the Sales and Service Tax (SST).

However, it’s not all gloom and doom for Malaysia. It may benefit from some businesses which want to relocate from China in order to escape tariffs under the trade war.

The report said trade constitutes a considerable part of Malaysia’s GDP, and potential shocks to world trade will have an adverse impact to the nation’s economy.

A full-blown trade war amounts to a situation when tariffs are fully implemented across the board, and their impact is broadly felt on the economies. The US is not just picking on China but also on its allies.

"A hit of 1-1.5 per cent on GDP growth for Malaysia seems a reasonable assumption; there could be gains from production (from China) being switched to Malaysia where many multinationals (MNCs) already have plants,” Pong Teng Siew, head of research, Inter-Pacific Securities told The Star.

The reallocation of global production bases out of China — to avoid US tariffs on Chinese goods — to Southeast Asia may partially help offset the dampener on growth caused by the trade war.