KUALA LUMPUR: PublicInvest Research expects the trade tensions between the US and China to continue, lending a negative impact to emerging economies.
The research house said in its Tuesday economic update that the conflict between the two nations may ultimately freeze trade momentum and steal away some growth as a result.
This comes as the world's trade is about to normalise this year after years of sub-par growth due to anemic growth in advanced economies.
"Trade growth, thanks to the sustained recovery in Advanced Economies, is projected to be higher than the world’s growth. However, the full blown of trade war may pull the trade and the world’s growth lower," it said.
"With no truce in sight, we expect emerging economies to take the biggest hit, in particular its currencies which may experience heightened volatility."
PublicInvest added that the US Federal Reserve's plan for two more interest rate adjustments this year as well as three next year further adds to the bearish sentiment in emerging economies.
However, the research house said its full-year average of RM4 per dollar remains unchanged.
It said the ringgit is expected to experience some selling pressure in line with bearish sentiment over emerging economy curriencies, although this would be offset by strong fundamentals.
"Although inevitable, we think selling pressure on the Ringgit could be less intense however, supported by strong fundamentals in the form of the country’s positive current account surplus and strong economic growth."
PublicInvest noted that there is concern that the US may use the same tactic with other countries it has trade imbalances with, including Germany, Canada and emerging economies like India and Malaysia.
"This may lead to a freezing up of global trade, resulting in stalling growth just when the world is about to grow within its potential after so long."
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