ADB: Malaysia, Vietnam and Thailand biggest beneficiaries if US-China trade conflict prolonged

KUALA LUMPUR: Asian Development Bank (ADB) has forecast Malaysia along with Vietnam and Thailand to become the biggest beneficiaries in Southeast Asia if the US-China trade tension prolonged.

Chief economist Yasuyuki Sawada said Malaysia, Vietnam and Thailand’s gross domestic product (GDP) growth could gain as much 0.59 per cent, 2.31 per cent and 0.3 per cent respectively in the medium term.

“This is the dominant trade redirection effect where Chinese export is replaced by other Asian countries export,” he said in a briefing at the Foreign Correspondents’ Club of Japan in Tokyo Wednesday.

He said Malaysia, Vietnam and Thailand would largely benefit from redirected electronics, transport equipment and machinery trade.

Sawada said Malaysia’s economic growth is expected to slow down to 4.5 per cent this year, from 4.7 per cent last year, in line with the weaker regional economic growth as an impact from the trade tension, but domestic consumption is projected to hold up well across the subregion, providing some cushion to the slowdown.

He said the country’s economy, however, is expected to rebound next year riding on the benefit from redirection of trade and investment triggered by the US-China trade war.

According to ADB’s Asian Development Outlook 2019 Update, Malaysia’s current account surplus rose sharply to US$7.4 billion in the first half of this year from US$4.2 billion in the same period last year, swelling as a share of GDP to 4.2 per cent from 2.3 per cent previously, due to an improvement in net service exports.

It said with higher inflows of foreign direct investment (FDI) but larger portfolio capital outflows, the financial account of the balance of payments recorded a deficit of US$32.4 billion or equal to 4.4 per cent of GDP.

The report said with growth moderating but still robust, the government continued to pursue its recently initiated fiscal consolidation programme.

“Trends in the first half of the year put it on track to meet its target for 2019 of a fiscal deficit equal to 3.4 per cent of GDP,” it said.

It said the government revenue increased by 17.8 per cent to reach 48.1 per cent of the full-year target and expenditure grew by 7.6 per cent to reach 47.2 per cent of the full-year target.

“While the government’s operating expenditure grew by 5.9 per cent, development expenditure was up by 17.9 per cent, mainly from higher social spending.

“The net result was a first-half fiscal deficit of RM22.4 billion, equal to 3.1 per cent of GDP,” it said.

The report said growth in domestic investment would likely to pick up next year from the resumption of mega public infrastructure projects such as the East Coast Railway Link, and National Fiberisation and Connection Plan.

“Although the cost of the ECRL project has been brought down to RM44 billion from RM65.5 billion through renegotiation with the Government of China, it is still a large infrastructure project with the potential to significantly lift the economy,” it said.

It said the resumption of infrastructure spending promised to attract more private investment.

“Investment should benefit as well from a pickup in FDI disbursement in the near term following a near doubling of FDI approvals in the first half of this year over a year earlier,” it said.

It said interest was particularly strong from US manufacturers which saw FDI manufacturing approvals from the US jumped to US$2.8 billion in the first half of this year from just US$800 million in the whole of 2018.

Meanwhile, it said the key risk to Malaysia’s economy over the short term is a persistent weakening of domestic investment and the escalation of the US-China trade conflict.

“That risk would be magnified if regional and international financial markets become much more volatile,” it added. - Bernama

source https://www.thesundaily.my/business/adb-malaysia-vietnam-and-thailand-biggest-beneficiaries-if-us-china-trade-conflict-prolonged-XX1404617