KUALA LUMPUR: Malaysia’s economy has remained resilient despite a global volatility that is being felt by many around the world.
One of the biggest issues today is the crude oil prices that have climbed steadily due to Middle East tensions, shipping disruptions in the Strait of Hormuz and record-high freight costs.
Should oil prices go beyond US$120 per barrel, the wider region including Malaysia could be facing a major danger point.
Bank of America country head for Malaysia Gautam Puntambekar said the outlook for the country could change should this happen.
“US$120 to US$125 is a mark which most countries would really look at as a danger signal. Because then it becomes completely unsustainable,” he said to StarBiz.
According to him, this could push the government to take more drastic measures to cushion the impact of higher energy costs.
Currently, more than 90% of the crude imported by Asian countries comes through the Strait of Hormuz, while alternative sources cannot simply replace these supplies overnight because refineries are configured to process particular grades of crude.
He said building alternative refining capacity could take two to three years or longer – making energy security and strategic stockpiling increasingly important.
“One potential response would be for countries to increase their oil storage from the current two- to three-month levels to potentially cover a much longer period once market stability returns.
“Everyone was importing because I don’t think anyone saw this coming.”
Gautam cautioned that it was important for countries to protect themselves against disruptions that may not have been anticipated.
For Malaysia, Gautam sees renewable energy as another important part of that response. He said Malaysia was particularly well placed in green energy, pointing to Sarawak where about 70% of electricity comes from hydropower.
“Malaysia comes into the forefront the moment you start talking about green energy. This could become increasingly important as countries look to reduce their exposure to imported fossil fuels.”
For Malaysia, the impact of elevated oil prices is more nuanced because the country is a net energy exporter.
Higher crude prices could support national oil company Petroliam Nasional Bhd’s earnings and dividends, potentially providing some support for government finances and subsidies.
He said because of this, Malaysia seems to be in a better position to withstand global tensions compared to other economies.
“Malaysia continues to benefit from strong domestic economic momentum and a steady pipeline of investments, particularly in data centres, semiconductors and renewable energy. Malaysia could still record gross domestic product (GDP) growth at the upper end of Bank Negara Malaysia’s (BNM) 4% to 5% forecast range.”
He said Bank of America has estimated GDP growth to be between 4.7% and 5.3% at year-end.
In addition to that, Gautam said one of Malaysia’s biggest strengths was the stability of its monetary and policy environment.
He said BNM had avoided knee-jerk responses to global market movements, helping maintain investor confidence.
“Malaysia’s relatively steady interest rates, stable foreign-exchange market and controlled inflation had provided businesses and investors with greater certainty.
“The ringgit was also one of the best performing currencies last year,” he explained.
Furthermore, Malaysia’s efforts to develop sectors such as data centres, green energy and semiconductor manufacturing have not gone unnoticed.
Gautam said Malaysia was increasingly being viewed as more than a low-cost manufacturing location.
“The country offers infrastructure, talent, proximity to Singapore, green energy and connectivity, while its geographically diverse talent pool provides an advantage over some regional competitors.
“Malaysia’s relatively deep domestic liquidity also provides a buffer if foreign investment slows.”
He pointed to the roughly 50-50 mix between domestic and foreign direct investment as a sign of resilience, arguing that domestic liquidity could help support the economy even if foreign investment were to weaken.
Moving forward, Gautam said he believes the next wave of growth could come from the healthcare sector.
He reckoned Malaysia’s relatively competitive healthcare costs, quality of care and large pool of English-speaking doctors could potentially give medical tourism the boost it needs. “Compared to neighbouring countries, language is not a barrier here in Malaysia. There’s also a huge amount of patient entries from the Asean countries as well as from further abroad.”
However, for the benefits of investment to reach more Malaysians, Gautam said the country needs to strengthen its workforce and ensure smaller businesses are integrated into expanding supply chains.
He said reskilling and upskilling would allow Malaysians to move into higher- value jobs.
“The opportunity, therefore, is not simply about attracting more foreign investment, but ensuring that investment creates a broader economic ecosystem.”
For now, Gautam remained bullish on Malaysia, but he said Malaysia’s buffers against global shocks do come with limits, and so the country needs to ensure its resilience is anchored by stronger domestic capabilities, a skilled workforce and a broader economic base.
