US-China trade tariffs truce boosts Malaysia's economic outlook

PETALING JAYA: With a key risk averted as world economic powerhouses the US and China called a truce on trade tensions, the economic prospects of Malaysia are looking up with gross domestic product (GDP) growth expected to go up to 6% this year.
US Treasury Secretary Steven Mnuchin announced on Sunday that the trade war between the two of the world's largest economies will be put on hold after a turf war of sorts in relation to the imposition of tariffs and the reduction of America's trade deficit with China by US$200 billion (RM796 billion).
However, it is not known whether a full-fledged trade war has been nipped in the bud or that the truce between the two of the world's largest economies is temporary, as talks between the two are reportedly still in progress.
Sunway University Business School Professor of Economics Dr Yeah Kim Leng told SunBiz that with the truce, a key risk to the economy has abated, and it would spell well for Malaysia as its trade and currency are strongly tied to the Chinese and US economies.
A favourable external environment coupled with increase in private consumption on the domestic front due to the impending abolishment of the Goods and Services Tax (GST), he said, will further lift growth prospects for the country.
"We may see GDP (gross dometic product) growth for this year shifting towards the upper end of the 5.5%-6.0% range, especially if capital investment this year is not derailed by the ongoing review of mega infrastructure projects," he said.
"The truce will enable negotiations to proceed more productively to find amicable solutions in plugging the huge trade imbalance between the two countries. However, if no tangible results are reached, we may see a resurrection of the trade dispute," Yeah cautioned.
Last week, Bank Negara Malaysia announced that Malaysia's GDP grew 5.4% in the first quarter of the year.
Senior research fellow at the Malaysian Institute of Economic Research Dr Shankaran Nambiar said the escalating tensions between the US and China may not have translated into a cutdown of orders from Malaysian companies.
Noting that while the tension has been averted at least for now, he said Malaysia would have been negatively impacted had this dispute been blown into a full-fledged trade war.
Shankaran projects Malaysia's GDP to outperform by growing by 5.7-5.9% assuming that the policies of the newly minted government work out well.
Meanwhile, on the ringgit, Yeah said the local unit is expected to hover between RM3.80 and RM3.90 to one US dollar by year-end.
"A stable ringgit will be favourable for the Malaysian economy, especially during the current phase of fiscal and structural adjustments," he noted.