There will be downside risks to Malaysia’s economy in 2019 after recording stronger GDP in the second quarter, but a recession is not in sight, said RHB Bank in its economic view today.

Although the risks for the economic outlook do not seem significant, it is likely to persist into next year, following the recent escalation of trade tension between the US and China, according to the bank.

"Although Bank Negara's tone sounds cautious for 2020’s economic outlook, our discussion with its officers seems to suggest that it is not expecting a global recession (negative global growth) and hence, a recession for Malaysia as well," it said.

They also believed that Malaysia is unlikely to be excluded entirely from the FTSE Russell’s World Government Bond Index (WGBI) in the latter’s review in September.

"We came to an understanding that the central bank has been actively engaged with FTSE Russell to improve investment conditions in the financial market," it said.

The bank is also of the view of another overnight policy rate (OPR) cut in the near future as a pre-emptive move to support growth should the trade war between Beijing and Washington worsen.

“This may happen in late 4Q19 or 1Q20 and BNM will likely wait for FTSE Russell’s review in September to be passed before making its move,” it said.

RHB also said the Prime Minister’s Economic Adviser Muhammed Abdul Khalid in their recent meeting shared that the government will be pragmatic in its fiscal policy.

The bank said impact from July 2018 trade tensions on the global and Malaysian economy were felt in the first half of 2019, while impact from the escalation of the trade tensions in May 2019 would be felt in the second.

"If the US went ahead with imposing the tariffs on the remaining US$300 billion (RM1.25 trillion) of imports from China, the impact will likely be felt in the first half of 2020, in our view.

"Elsewhere, US threatened to impose tariffs on imports from France, after the latter imposed a three percent digital tax on US tech companies such as Facebook and Google, pointing to potential new trade tension," it said.

Last week, the White House opted to delay imposing additional tariffs on Chinese goods until December, citing the US’ holiday shopping season.

- Bernama