KUALA LUMPUR (May 18): The second quarter will serve as a signal of Malaysia’s ability to weather the ripple effects of the conflict in the Middle East, according to MARC Ratings Bhd.
Impacts of the war, particularly higher crude prices and petroleum feedstock supply snags, have yet to fully show in the first quarter, setting the stage for this ongoing three-month period to be a “litmus test” for the tone of the remainder of the year, said MARC Ratings senior economist Kamal Zharif Jauhari.
“We believe the effects of the war haven’t yet kicked in. 2Q will be the litmus test here, and if the same or relatively similar pace is portrayed, then we’re able to upgrade our forecast,” Kamal said during a webinar on Monday.
The rating agency’s current base case is for Malaysia to log a 4.4% year-on-year GDP expansion in 2026 — within the government’s official forecast of 4% to 4.5%. The country’s GDP expanded 5.4% year-on-year in the first quarter, suggesting moderation in remaining quarters.
MARC Ratings chief economist Dr Ray Choy said consumer spending already began to slow in March, but is expected to slow further in subsequent months. He also noted that March was augmented by festive spending — the tail end of Chinese New Year and Hari Raya Aidilfitri.
“The other key thing to know would be to what extent tourism has been affected because of higher airfare prices and finally, and most importantly, the impact on inflation,” Choy said.
“We’re going to see the full impact [on inflation] being felt in 2Q. The belief is that a lot of producer prices will eventually be passed through to the consumer, and in turn, whether the consumer is expected to remain resilient,” he added.
Higher crude prices on the back of the conflict in West Asia have put pressure on businesses.
The conflict, which has now dragged into its third month, pushed benchmark Brent crude above US$130 (RM512) per barrel following the closure of the Strait of Hormuz.
MARC Ratings expects Brent to average US$80 to US$90 per barrel in 2026. Brent crude is currently at close to US$110.
Aside from energy price concerns, supply of petroleum-based raw materials and inputs, central to modern economies, is another hurdle to contend with.
The inputs, needed for packaging materials and industry chemicals to hygiene products, cosmetics and automotive components, are a concern for manufacturers as they grapple with worsening supply conditions.
Last week, Nurhisham Hussein, the senior director of economy and finance at the Prime Minister’s Office, said the raw materials and inputs shortage is expected to hit Malaysia in June, and may result in manufacturers reducing overtime and shifts.