PETALING JAYA: The ongoing United States-China trade dispute is expected to result in a slowdown in average real gross domestic product (GDP) growth, as well as weigh on exports for Malaysia, Indonesia and Thailand over the coming quarters.
Fitch Solutions Macro Research said the downside pressure, however, may be partially offset by increased government subsidy spending and other policies aimed at improving the purchasing power of consumers, in order to support private consumption growth.
The research house forecasts the average growth for the three economies to slow to 4.6% in 2019 from 5.0% in 2018.
Its 2018 and 2019 real GDP growth forecasts are 5.1% and 4.5% for Malaysia, 5.3% and 5.4% for Indonesia and 4.5% and 3.9% for Thailand.
“We expect real GDP growth to slow slightly on average over the coming quarters for three major Asean emerging markets – Indonesia, Thailand, and Malaysia – mainly due to headwinds arising from US-China trade tensions.
“However, their economies are likely to be supported by looser fiscal policies, which will boost private consumption and government spending, partially offsetting the negative impact from external factors,” it said in a report.
The research house added that the likely escalation of trade tensions in the second half of 2018 would act as a drag on exports in all three economies, which will, in turn, weigh on growth.
It noted that exports growth has remained strong so far in 2018, with all three countries still posting double digit year-on-year growth figures in July.
However, it said, the pace of expansion is likely to moderate, as the disruption to global trade flows and supply chains from worsening trade tensions would indirectly weigh on the three economies.
Exports to the US and China accounted for about a quarter of all three economies’ total exports in 2017.
“For Thailand and Malaysia, this is a bigger problem as they are more reliant on exports,” it said.
Exports accounted for 77.5% and 72.9% of 2017 GDP for Thailand and Malaysia, respectively.
The research house noted that in Malaysia, the Pakatan Harapan government had abolished the goods and services tax (GST) with effect from June 1, and only replaced it with the sales and service tax (SST) with effect from Sept 1.
“This resulted in a three-month consumption tax holiday, which we see boosting private consumption growth in the third quarter of 2018.
“Big-ticket items and consumer durables such as cars are likely to see a surge in sales,” it said.
It said there were indications that this trend was already starting to play out, with growth in auto sales accelerating to 28.3% in June from a contraction of 15% year-on-year in May.
While the country’s third-quarter private consumption momentum would come at the expense of a slowdown in the fourth quarter as consumers were likely to front-load their purchases to take advantage of the tax holiday, the research house said consumers would still see a boost to their purchasing power in the fourth quarter.
“Firstly, the SST is less onerous than the GST, and secondly, fuel subsidies were reintroduced in June, fixing the prices of RON95 petrol and diesel at RM2.20 per litre and RM2.18 per litre, respectively,” it said.
The US and China have been locked in a trade battle, imposing tit-for-tat tariffs on each other. The US and China have already imposed tariffs on US$50bil worth of each other’s goods. In Trump’s latest move, he reportedly approved tariffs of a further US$200bil on Chinese goods, which could come as early as this week.
If that takes place, Chinese President Xi Jinping’s administration may not want to participate in bilateral talks, The Wall Street Journal announced on Sunday.
Since the global financial crisis in 2008, the world’s top 60 economies have collectively introduced more than 7,000 protectionist trade measures.
This trend has escalated considerably by recent tariff announcements made by the US and retaliatory measures from its trading partners.
Studies by the International Monetary Fund suggest that if current trade policy threats are realised and business confidence falls as a result, global output could be about 0.5% below current projections by 2020.
The Depository Trust & Clearing Corp said that while several tariffs are directed specifically at Chinese imports, many other Asian countries are affected by US-China commercial links as well through their supply chains.