MALAYSIA'S TARGETED SUBSIDIES EXPECTED TO MODERATE INFLATION PRESSURE AMID WEST ASIA CONFLICT, SAYS MARC

KUALA LUMPUR, March 18 (Bernama) -- Malaysia’s headline inflation is expected to remain manageable, supported by the government’s targeted subsidies, amid the West Asia conflict, according to the Malaysian Rating Corporation Bhd (MARC).

“Fiscally, due to potentially higher subsidies, the fiscal deficit-to-gross domestic product (GDP) ratio may rise but remain healthy at below four per cent in 2026, subject to possible cuts in other expenses and increases in revenue sources such as contributions by government-related entities,” MARC said in a statement today.

It noted that the impact of the conflict in West Asia on Malaysia is expected to be mild, given the country’s minimal trade exposure to the region and its position as a net exporter of hydrocarbons. The rating agency said Malaysia’s trade is skewed towards Asia, supported by robust exports of electrical and electronics (E&E), machinery, and palm oil products.

“Domestic inflation, particularly within the transport segment, will face upward pressure. While RON95 petrol remains shielded by government subsidies, diesel and jet fuel prices are market-linked, which may raise transportation costs, leading to secondary inflation across broader consumer segments,” it added.

It said key domestic industries, namely E&E, chemicals, agriculture, and logistics, will face immediate exposure to elevated input costs, particularly for refined petroleum and fertilisers.

At the same time, potential trade diversion bodes well for Malaysian liquefied natural gas exporters and the crude palm oil sector, where the latter stands to gain from accelerated biofuel demand on higher oil prices.

“Balancing external geopolitical events with domestic economic resilience, MARC Ratings expects (Malaysia’s) GDP to remain robust, with downside risk of 0.2-0.4 per cent to our baseline 2026 GDP forecast of 4.6 per cent for Malaysia, subject to the extent of the war in West Asia,” it said.

MARC now expects Brent crude to average between US$70 and US$80 per barrel in 2026, revised up from the earlier forecast of US$60 to US$70 per barrel.

The rating agency has also widened its short-term ringgit forecast to 3.92-4.07 against the US dollar, reflecting heightened risk aversion in emerging market currencies and lower expectations for US Federal Reserve rate cuts.

Looking ahead, MARC said Malaysia’s structural economic trajectory remains robust, and the country is well-positioned to recover strongly once the current phase of geopolitical disruption in West Asia, which is likely to be temporary, subsides.

-- BERNAMA