KUALA LUMPUR, Aug 16 — The ongoing trade disputes between the United States and China are projected to weigh on Malaysia’s 2019 baseline gross export growth by -0.5 to -0.8 percentage point (ppt), said Bank Negara Malaysia (BNM).
The central bank said the prolonged trade disputes and the resulting impact on lower global trade has mainly affected Malaysia’s trade activity, with exports to affected countries lower (direct channel), while exports to countries within the global value chain (GVC - indirect channel) have also been affected.
In its quarterly bulletin on the economic and financial developments for the second quarter released today, BNM pointed out that the GVC channel would contribute about 20 per cent of the decline.
Additionally, the impact of lower trade activity on growth is also compounded by increased business uncertainty.
However, should the downside risks from the ongoing trade dispute materialise, Malaysia’s export growth could potentially be reduced by up to an additional -0.2 ppt and gross domestic product (GDP) growth by about -0.1 ppt this year.
Meanwhile, BNM said the trade tensions have induced heightened volatility in financial markets and generated substantial uncertainties for firms planning to invest and policymakers striving to promote growth.
“A reflection of the recent past suggests that trade tensions will continue, possibly into the medium to long term,” it said.
Thus, the central bank suggested smaller countries that are well-integrated in the GVC must tread carefully to avoid circumventing established trade restrictions of the major economies.
“In this environment of heightened uncertainty, swift, nimble and adroit policy measures are critical to ensure that Malaysia remains resilient and well-positioned to weather any downside risk of a trade war,” it said.
It said structural reforms such as promoting high value-added industries, diversifying export products and markets, enhancing labour market flexibility, and attracting quality investments that would create high-value jobs should continue to be pursued.
In the meantime, Malaysia’s position in the GVC should be consistently reassessed in order to leverage on opportunities to fortify the country’s role in the ecosystem.
Malaysia must also proactively pursue multilateral and bilateral trade pacts with other economies.
“Crucially, these policy thrusts will contribute towards enhancing the resilience of the Malaysian economy,” the central bank said. — Bernama