Tariff Unlikely To Cause Contraction In Global Economy: MIDF
MIDF Amanah Investment Bhd (MIDF Research) is not expecting the temporary supply shock from the reciprocal tariffs imposed by the US to cause any sharp contraction in the global economy.
In a research note, MIDF Research shared that the impact on the global trade could be more significant if the latest trade war 2.0 also involved other countries.
“Given the size of the US market which covered around 13% of Malaysia’s total exports last year, a 10% potential decline in shipments to the US could hit Malaysia’s exports by 1.3 percentage point (ppt).
“If the tariff hikes also cause demand from regional countries to weaken then another additional 10% declines in exports to regional countries (such as Singapore, Taiwan, South Korea, Vietnam, Japan and even China) could cause the overall exports to experience a larger decline of around 5.8ppt,” MIDF Research said.
However, it added that the weaker production will also result in reduced imports of intermediate goods such as electric and electronic products; machinery, equipment & parts; and manufactures of metal.
“Taking into account the reduced imports, we estimate the net impact of external trade slowdown on Malaysia’s GDP growth could be up to -1.5ppt.
“However, greater trade with other regions such as BRICS and ASEAN will partly mitigate the slower demand from the US,” MIDF Research said.
It added that the extent of the impact on trade and production adjustment, however, will be subject to the size in final demand shift (particularly from the US) that will occur in reaction to the selling price hikes.
“If companies can absorb part of the cost increases, this could limit the price pressures that will be passed on to the consumers,” it said.
