KUALA LUMPUR (July 17): Malaysia’s economy may have outperformed expectations but concerns are rising that the robust growth could be threatened by protracted external uncertainties.
A prolonged escalation could drive oil prices to as high as US$140 per barrel, weakening global trade and raising costs, RHB Research said. That could shave 0.8 percentage-point off Malaysia’s growth as producer prices in the country remain highly sensitive to global oil movements, the research house said.
“Although pass-through to consumer prices has remained relatively contained, persistently elevated energy prices could intensify cost pressures and weigh on manufacturing activity,” RHB Research said.
Data out earlier on Friday showed that Malaysia’s economy accelerated faster than expected in the second quarter, defying expectations for weaker activity from shortages of energy and industrial materials amid the raging Middle East war.
Export-oriented manufacturing and mining sectors led growth while services — which accounts for more than half of Malaysia’s economic output — has moderated, raising worries about the country’s main engine of growth.
“There are clear signs of softer domestic demand amid elevated cost pressures,” according to United Overseas Bank. Further, the effects of the Middle East conflict are likely to become more apparent in the coming months as inventory diminishes, the Singapore-based bank noted.
Recent re-escalation, including new threats to key global shipping routes such as the Red Sea alongside existing risks surrounding the Strait of Hormuz, continues to cloud the external outlook, the bank cautioned.
Malaysia’s economy is expected to expand 4%-5% this year, and growth could possibly come in the upper half of the range, Bank Negara Malaysia (BNM) governor Datuk Seri Abdul Rasheed Ghaffour said earlier this month.