Agricultural workers water crops at a farm in Kuantan on February 16, 2016. Malaysia’s agriculture and mining sectors account for 15 per cent of the economy. — Reuters pic

KUALA LUMPUR, July 29 — The Malaysian economy’s lower exposure to global trade means it will avoid the brunt of the fallout from the US-China trade war unlike Singapore, according to observers.

Amid Singapore’s 17.3 per cent year-on-year slump in non-oil exports, they believe Malaysia’s stronger reliance on domestic consumption means the country will not suffer the longer term decline that is befalling the island state, according to a report on The Edge Markets today.

“The protracted trade tensions will continue to pose a material risk to trade and investment through denting business and financial market sentiments, slowing investment and growth. Any country’s external trade sector will be affected via the disrupted global supply chains though the magnitude of impact would depend on the degree of trade openness, product and market diversification.

“In this case, Malaysia’s trade openness is smaller compared to that of Singapore and if trade tensions morph into technological disruption, Singapore’s technology-related exports will be more affected than that of Malaysia. In addition, Malaysia has commodities, crude oil and liquefied natural gas to buffer albeit at moderate prices,” Socio Economic Research Centre (SERC) executive director Lee Heng Guie was quoted as saying.

Singapore’s economy shrank 3.4 per cent between the first and second quarters of the year, prompting speculation that it may go into a technical recession in the current quarter.

While Malaysia is not expected to experience as severe a decline, concerns remain as its economy is linked closely to that of its southern neighbour.

Maybank Investment Bank Research chief economist Suhaimi Ilias pointed out that there was a correlation coefficient of 0.7 between the two countries’ economies over the past decade.

“But a diversified economy should mitigate the impact to Malaysia’s economic growth from current trade-centric risk.

“I am not referring to diversified exports but a diversified economy, for example, Malaysia’s agriculture and mining sectors (non-existent in the Singapore economy) which account for 15 per cent of the economy,” he was quoted as saying.

The protracted trade war between the US and China appeared set to ease after the leaders of both countries met during the G20 Summit in Osaka last month but the pace of their trade talks continues to fuel concerns for the global economy.

Export-reliant nations including Malaysia remain on the edge hoping for a rapprochement between the US and China that would prevent a full-blown trade war that could plunge the stagnant global economy into a recession.