Malaysia is going through rough times and investors need to be informed. With the falling price of crude oil and other commodities, the slow global economy, reduced consumer demand at home and flooding by monsoons, its economy has suffered—and the trend looks likely to continue in the year to come.
Exports make up a significant part of Malaysia’s economy, although it has worked hard to transform itself to lessen dependence on that sector. However, economic research firm Malaysian Rating Corporation Berhad (MARC) said in reports that it expected the country’s 2015 GDP growth to decrease to 4.7%. That’s lower than the government’s projection of 5–6% in the 2015 budget.
According to MARC, low oil prices will play a large roll in that reduced growth forecast. And with the oil and gas sector providing about 32% of government revenue in 2013, the drop in oil prices has taken a toll on the economy that looks likely to spill over into cutbacks in both public projects and subsidies.
The 2015 budget had been calculated on the basis of an average crude oil price of $100–$105 per barrel, but with the current price lingering below $50, substantial adjustments will likely be required as the year progresses.
Other financial stresses on Malaysia’s exports include lower prices for natural rubber and crude palm oil, both of which make substantial contributions to the bottom line.
But in a bad-news-is-good-news kind of way, recent flooding in Malaysia drove up the price of palm oil even as the sector feared substantial damage because of heavy rains. While the country’s December output could be as much as 20% below November’s tally, thanks both to the rain and to a seasonal slowdown, a change in the forecast indicated that downpours could be less than initially feared, even as concerns on the world market about palm oil supply brought an increase in the price.
Of course, the flooding still caused considerable damage to property and required that hundreds of thousands of people be evacuated. The weather also pushed flood mitigation projects to the top of the government’s priority list in its next five-year plan, the 2016-2020 development blueprint.