Bank Negara Malaysia assesses economic risks from West Asia conflict, with scenarios for oil prices and growth, while highlighting fiscal buffers from subsidy reforms. KUALA LUMPUR: Bank Negara Malaysia (BNM) is actively evaluating the economic risks stemming from the West Asia conflict, which Governor Datuk Seri Abdul Rasheed Ghaffour warned could persist for up to six months.
He stated the conflict demonstrates how swiftly geopolitical events can disrupt energy markets and global logistics.
“The impact depends on the duration of conflict, the extent of damage to key infrastructure, in particular, and the degree of disruption to global logistics,” he said at a flagship report release.
Abdul Rasheed outlined the transmission channels, beginning with higher oil prices and shipping insurance premiums that increase costs and inflation.
Supply chain disruptions affecting cross-border flows would also weigh on growth and trade, while financial markets would respond with higher risk aversion.
Consequently, the central bank has developed scenarios to gauge the conflict’s possible duration and severity amid high uncertainties.
Its baseline assumes the conflict lasts one to three months, with an optimistic scenario of three to six months and a pessimistic outlook extending beyond six months.
For oil prices, BNM’s baseline projection is between US$70 and US$90 per barrel.
An optimistic scenario ranges from US$90 to US$100, with a pessimistic outlook at US$110 and above.
Malaysia’s 2024 growth projection of 4.0% to 5.0% incorporates the baseline scenario and some downside risks.
“But if it were to get worse, into more pessimistic scenarios, of course, anything can happen,” Abdul Rasheed noted, emphasising the need to look beyond noise to underlying drivers.
On domestic policy, he said ongoing subsidy rationalisation has strengthened the government’s fiscal position, creating buffers against external shocks.
He cited the recent BUDI95 petrol subsidy quota adjustment as reflecting a commitment to a more sustainable fiscal stance.
The target remains a fiscal deficit of 4.3% for the year, in line with the Fiscal Responsibility Act.
Abdul Rasheed stressed the need for prudence and coordinated government actions as events evolve.
https://thesun.my/business/bnm-models-west-asia-conflict-impact-on-malaysias-economy/
