Moody’s Analytics: Malaysia’s outlook buoyed by oil prices, economic reopening


MALAYSIA’S growth outlook has improved due to surging oil prices and the reopening of the economy, according to Moody’s Analytics.

Its chief Asia-Pacific (APAC) economist Steve Cochrane said the mixed signals across the APAC countries — and across the components of their export and domestic economies — have driven some changes to the near-term economic outlook across the region.

He added that the firm has improved its June forecast of Malaysia’s real GDP for 2022 to 7% since the Ukraine invasion.

He emphasised that within South-East Asia, the GDP outlook for Malaysia and the Philippines has strengthened as the first quarter of this year’s (1Q22) GDP growth was much stronger than expected, with domestic consumption growth accelerating faster than expected amid easing social distancing rules while exports had been supportive as elsewhere in the region.

“For Malaysia, we have improved the GDP growth forecast partly because the country is a net exporter of crude oil.

“Malaysia benefits from continued high crude oil prices, along with the elevated prices for oil and the continued exports of its tech goods.

“The fairly good breadth of its export base bodes well for Malaysia,” he said during a webinar session titled “APAC Economic Outlook: Resilience, So Far” today.

Cochrane also noted that there was an overall pick-up in Malaysia’s domestic consumption growth.

Malaysia’s 1Q22 GDP, he said, came in stronger than expected, with more momentum promised after the lifting of movement restrictions and improving domestic demand.

This was also supported by the economic activity which continued to normalise with the easing of Covid-19-driven containment measures.

Malaysia’s economy, as measured by GDP, grew 5% year-on-year in 1Q22, compared to a contraction of 0.5% in 1Q21, mainly underpinned by improved domestic demand.

Meanwhile, Moody’s Analytics has noted that the economy of the APAC region continues to show resilience in the face of inflation caused by sanctions on Russia, goods and commodities shortages after the invasion of Ukraine, as well as local shutdowns in China due to the republic’s zero-Covid policy.

The firm said the greatest risk to the outlook is the need for APAC central banks to carefully calibrate policy normalisation so as not to raise rates too fast and staunch economic growth, nor raise rates too slowly and risk capital outflows and currency depreciation as the spread with US and European interest rates widens.

Nevertheless, the firm highlighted that the export bans or caps on wheat, sugar, chicken, palm oil and other food commodities continue to further distort markets in the APAC region.

“If producers cannot sell products at global prices while paying global input prices on fertiliser and other imported inputs, the risk is that food commodity export caps could see production ultimately fall rather than rising,” it said.

Additionally, Moody’s Analytics also stated that there is a good chance that global crude oil prices will not rise further this year as prices have fallen from their peaks of about US$120 (RM528) per barrel for both Brent crude and West Texas Intermediate in the immediate aftermath of the European Union decision to elevate sanctions on Russian crude and natural gas.

“Global energy prices may not directly exacerbate the inflation of fuel, electricity and transport prices. But they will remain high, and food inflation may continue to rise until energy prices are fully woven into food production.

“Further driving food inflation will be the difficulty in finding alternative sources for wheat, edible oils, and other food commodities that previously came from Russia or Ukraine,” it said.