DOWNSIDE RISKS TO MALAYSIA'S TRADE OUTLOOK

The knock-on effects of the trade war between the United States (US) and China has been significant for Malaysia.

- EVELYNS. DEVADASON

The high degree of (direct) trade exposure to the Chinese economy through exports of intermediate goods, and the indirect linkages through global supply chains has rendered Malaysia less resilient to the trade war. Also, positive trade diversion effects from both US and Chinese import demand remained limited for Malaysia relative to its regional peers, and therefore could not offset the full impact of the trade war on the economy. Consequently, total trade of Malaysia contracted by 2.5 percent in 2019.

Hence, downside risks are expected to continue to dominate the trade outlook for Malaysia given the unfavourable external economic conditions. The global challenges that are likely to weigh on the country’s export demand include the following: unresolved trade tensions between the US and China and the phase one trade deal; the economic slowdown of China, the Covid-19 (or coronavirus) outbreak and the impending growth strategy of China; and the Brexit saga.