HOW is Malaysia going to survive and deal with external and internal challenges, with trade tension worsening between the US and China, and projected slower growth except in the US?
The country may currently be in a strong position but it can be vulnerable to sudden shocks from the impact of a worsening trade war or rising US rates that lead to a weaker ringgit, outflows and higher borrowing costs.
The effect of the trade war is not just on companies involved in the supply chain to China; Pantech Group has been accused of circumventing a US anti-dumping duty on a similar product from China. It has suspended exports of carbon steel butt-weld fittings to the US.
US second quarter economic growth at 4.1%, the fastest since 2014, may be expected to cool but the plan for higher rates is still on the table.
Large funds may be eyeing emerging markets (EMs) again on cheap valuations and in some cases, fundamentals, but it is unclear what can happen if US rates keep rising.
“The government must have the capacity to promptly react and implement policies to counteract dampening forces on growth,” says Lee Heng Guie, executive director, Socio Economic Research Center.