KUALA LUMPUR: Growth of trade dependent economies like Malaysia will be impacted this year by the potential protectionist US policies and the economic stability of the EU, says UOB Bank.
Economist Julia Goh says Malaysia should continue to facilitate intra-regional exports through Asean and its trade partners and reinforce regional integration within Asia.
"Malaysia should further diversify away from traditional export sectors towards higher value-added segments to support economic growth," she said, in a report.
The key growth driver for the Malaysian economy and its neighbouring Asean economies in the longer term will stem from the development of mega infrastructure projects that improve connectivity and facilitate mobilisation of goods, services, and people.
"The US is running large trade deficits with China which it has deemed "unfair", which means that other trade partners with similar "unfair" advantage would also be at risk.
"These include Mexico, Canada, Japan, and in this part of the world, Vietnam, South Korea, Malaysia, and Thailand will be particularly vulnerable especially if the Trans Pacific Partnership Agreement (TPPA) is off the table."
Singapore and Hong Kong would likely escape on this front given that the US has trade surpluses with these two economies.
The biggest beneficiaries of the TPPA in Asia would have been Vietnam, Malaysia and Singapore as these countries export products with high tariffs levied by the US.
Malaysia would have benefited from exports of palm oil and rubber, plywood, electronics, textiles, automotive parts and components.
Goh says it is unlikely that the other 11 members will push ahead with the deal with the US out of the picture.
Instead the members are likely to focus on the Regional Comprehensive Economic Partnership (RCEP) which is a more Asia-centric trade deal that is being negotiated between 16 countries including Asean, Japan, China, India, South Korea, Australia and New Zealand. The market size of the RCEP is US$23 trillion or 30 per cent of global GDP.
"If the RCEP is realised, it would open up opportunities particularly for Vietnam, Malaysia, South Korea, India, China and Hong Kong, given some similarities in the trade deals."
Asia will remain as the spotlight for future economic growth as countries embark on large scale infrastructure programmes to boost long-term competitiveness and drive sustainable growth especially among the middle income class.
Rising Asian affluence will be a net positive for consumption-related sectors such as the transport, logistics, utilities, information and communications technology, healthcare and education sectors.
"To cater for such massive demand in the future, Asia is doubling-up its efforts to reform their domestic economies, boost productivity, attracting investments and driving up economic growth. "
Within Asia, much of the growth will come from developing Asean economies such as Indonesia, Vietnam, Malaysia, Thailand, the Philippines, Myanmar, Cambodia, and Laos.
Opening up of frontier Asean economies such as Myanmar, presents huge opportunities for investors.
Asean has been so successful in its draw of foreign direct investments ( FDI) that it is estimated that the inflows into Asean will surpass China for the first time in 2017, after falling behind for more than a decade.