Protectionism that threatens global trade seen as key risk to Malaysia’s economy

This article first appeared in The Edge Financial Daily, on November 8, 2017.
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KUALA LUMPUR: A protectionist policy under US President Donald Trump’s America First agenda is a threat to global trade and is viewed as a key risk to Malaysia’s economic growth, according to a panel discussion on emerging risks during the MIA International Accountants Conference 2017 yesterday.

Noel Clehane, global head of regulatory and public policy of BDO, said Trump’s protectionist stance would hurt global trade and Malaysia, which is an open economy.

“The US under President Trump has already seen the reverse of policy as a pro-free trade country, when the US pull out from the TPP (Trans-Pacific Partnership). I think of all the risks we have talked about, this is more dangerous to Malaysia’s economy in the short term. The volatility created from all such protectionism would affect all companies, including those from Malaysia,” Clehane said.

Among other risks the panel highlighted were how the European Union (EU) bloc is vulnerable to further break-ups post Brexit, the Gulf crisis, and the rising 

geopolitical tension between North Korea and the US.

Nick Parker, president of the Institute of Chartered Accountants in England and Wales, said Brexit could result in a temporary dip in the economy as free trade gets affected, especially for the UK, but he believes that the negotiation will end in a pragmatic and sensible deal.

“I think there will be bumps along the road but I do believe the UK does has the ability to prosper post departure from the EU,” Parker said.

Khazanah Research Institute (KRI) managing director Datuk Charon Wardini Mokhzani concurred with Clehane and Parker, saying that any threat to global trade is negative to Malaysia.

“Without global trade, we will not have the standard of living we have today. Any threat to free trade is a worry for us. An example is Brexit and I don’t mean the UK pulling out from the EU as a threat to us but more so the idea in most Western democracy that free trade is not good. The region that used to champion free trade is now saying it’s not good … it’s definitely a threat to us,” he said.

As for geopolitical risk, Charon highlighted the unrest seen in Spain, where Catalonia pushed for independence, as something unseen for many years. He also pointed to the recent anti-corruption purge in Saudi Arabia, which led to high profile arrests of princes. “It is very worrying,” he said.

As for Brexit, Charon thinks Malaysia should benefit from it as the UK looks to its Commonwealth counterparts to increase trade. “From Malaysia’s viewpoint, there is potential for more trade with Britain. In terms of developing the Malaysian economy, it should be good,” he added.

Charon also shared that Malaysia’s economy has been resilient in the last two years, despite the oil price plunge.

“While the ringgit went from RM3.40 all the way to RM4.40 against the US dollar, at least, the shock is only on the currency exchange instead of the real economy. Even though the ringgit has depreciated so much, inflation is still manageable,” he added.

He said the country’s gross domestic product is expected to grow 5.2% this year, while inflation has remained manageable at about 3%, with unemployment at 3.3%, which are some of the positive indicators that Malaysia is on the right track.

“We have just enough inflation to keep the economy going. For the longer term, we have to move up the value chain and create more intellectual property,” he added.

The two-day conference this year, organised by the Malaysian Institute of Accountants, is themed “Expanding Horizons: Be Future Relevant”. The Edge is the media partner for the event, which was attended by some 3,000 delegates.