Cheap oil hurts Malaysia’s oil-exporting economy

Global Business

Most countries in Southeast and East Asia benefited from plunging global crude prices, but the free fall has been a sharp blow to the oil-exporting Malaysian economy.

Worries over growth targets contributed to the sharpest plunge in the value of the country’s currency since the Asian financial crisis. The prices of other key commodities, such as palm oil, also slipped in recent months, but there still could be some upside for Malaysia. CCTV America’s Rian Maelzer reported from Kuala Lumpur.

Cheap oil hurts Malaysia's oil-exporting economy

Most countries in Southeast and East Asia benefited from plunging global crude prices, but the free fall has been a sharp blow to the oil-exporting Malaysian economy. Worries over growth targets contributed to the sharpest plunge in the value of the country's currency since the Asian financial crisis. The prices of other key commodities, such as palm oil, also slipped in recent months, but there still could be some upside for Malaysia. CCTV America's Rian Maelzer reported from Kuala Lumpur.

Royalties from the state oil company Petronas provided one third of the Malaysian government’s revenues last year. That’s bad news now, because plunging global oil prices would hit the government’s income and hamper its spending plans.

“Definitely, I think it’s going to be a challenge, but I think one of the key things you’ll see the government starting to do is prioritizing major projects, and maybe even stalling some of the projects until future periods,” professor Mahendhiran Nair, an economist from Monash University Malaysia, said.

Malaysia has already seen the price of palm oil — another key commodity — slide by about 20 percent this year. The drop hurt hundreds of thousands of small-scale farmers and dampened the rural economy.

Economists said the drop in oil prices should eventually result in lower transportation and other costs, and help to moderate inflation when the government introduces a new goods and services tax in April.

Also on the plus side, the government was able to end its heavy subsidies on oil without inflicting pain on consumers, potentially saving itself billions of dollars a year.

Exporters should also benefit from a weaker ringgit (Malaysia’s currency). Economists also said the commodities price slump could help spur needed changes.

“The decrease in oil prices is going to force the Malaysian economy to start looking in new directions, particularly with respect to shifting gears to becoming more knowledge intensive, diversifying the economy and looking at key drivers such as tourism, finance and other services that will drive the economy,” Nair said. “So less reliance on hydrocarbons.”

However, economists predicted Malaysia’s economy would grow less than previously expected in 2015, suggesting that in the medium term at least, Malaysia was going to pay a price for the oil slump.


John Allison from Unio Capital talked about oil price

For more on this, CCTV America’s Michelle Makori speaks to John Allison about the plunging price of oil and the decline in commodities. John Allison is the chairman and chief investment officer at Unio Capital, an asset management firm.

John Allison from Unio Capital talked about oil price

For more on Malaysia's economy, CCTV America's Michelle Makori interviewed John Allison, the chairman and chief investment officer at Unio Capital, an asset management firm.