KUALA LUMPUR, June 27 (Xinhua) -- The trade spat intensified by the United States has prompted analyst to cut Malaysia's gross domestic product (GDP) this year by 0.1 percentage point to 5.2 percent.
"The escalating U.S. 'tariff tantrums' take effect leading to slightly lower global GDP growth, we downgrade our Malaysia GDP forecast slightly to 5.2 percent annual growth from 5.3 percent," Hong Leong Investment Bank (HLIB) Research said in a report Wednesday.
The research house has also revised down its global GDP growth forecast 0.1 percentage point to 3.8 percent.
"While the underlying global growth continues to be strong, the downside risks arising from global trade tensions have risen. Given Malaysia's trade openness, the slight downgrade of global GDP is expected to weigh slightly on firms' export demand prospects as well," it said.
The U.S. has proposed to impose tariff on 50 billion U.S. dollars worth of Chinese goods. In response, China has retaliated by an equal amount.
According to the report, these figures account for 2.5 percent and 3.5 percent of total China and U.S.exports to the world, with marginal effect on global GDP growth.
The research house sees rising trade tensions as another key risk for global growth, on top of the faster-than-expected U.S. tightening.
"Should the tariff dispute involve more major economies on a larger scale, the impact to global growth will be more significant," it said.
It cited an IMF study highlighting protectionism in the global arena that raising tariff by 10 percent on imports would lead to lower global GDP by approximately 1.75 percent.
Overall, HLIB foresees Malaysia to experience more moderate growth this year.
Despite the abolishment of goods and services tax (GST) and reintroduction of fuel subsidy should boost the country's consumption, it believed, the positive impact to be offset by lower government expenditure.
The new Malaysian government intends to achieve its deficit target of 2.8 percent of GDP this year after undertaking several rationalizing initiative.
On the supply side, the research house said, the growth is expected to be supported by increase in services sector, but will be offset by lower commodity sector (agriculture and mining sector) and slower manufacturing growth.
It projected growth in manufacturing segment to continue at a slower but still solid pace.
"Nevertheless, rising trade tariff threats are expected to increase cost of materials which may limit final demand. In addition, the uncertainty emanating from U.S. tariff tantrum is expected to limit business investment plans," it added.
As for services sector, it said, consumption-related services, which account for approximately one third of total services, are expected to see an increase due to government's consumption boosting measures especially in the third quarter following the consumption tax holiday.
"But other components such as government services which account for 15 percent of total services, is expected to register slower growth due to government's fiscal consolidation measures," it added.