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Gloomy outlook for Malaysia as oil, commodity prices plunge, says WSJ

Gloomy outlook for Malaysia as oil, commodity prices plunge, says WSJ

The negative effects of plummeting oil commodity prices has had a severe impact on Malaysia's growth prospects and government revenues, the Wall Street Journal reported today.

The heavy reliance on the export of oil, palm oil and rubber for the nation's revenue means that the decline in global prices for these commodities will hit Malaysia the hardest.

In contrast, WSJ said that other Asian economies, which are commodity importers, are set to benefit from the drop in price.

Calling Malaysia Asia’s largest oil-and-gas exporter, the US business daily said the country benefited when the price of crude oil remained over US$100 a barrel for most of last year.

Hence, the sharp decline in the oil price to US$80, and the expected further drop in price, has resulted in foreign investors withdrawing around US$2.5 billion from the country last month, WSJ quoted analysts as saying.

Malaysia's current account surplus stands at RM7.6 billion in the third quarter of this year compared with RM16 billion for the same period a year ago.

The country's oil-related revenue amounted to RM63 billion last year, which is equivalent to almost 30% of the total government revenue.

According to the WSJ, the country's woes are further compounded due to the decline in the price of rubber and palm oil – two other major exports – to new lows.

Malaysia remains the world’s second-largest producer of rubber and palm oils, making the 25% and 16% drop in both commodities, respectively, having a severe impact on revenue.

Meanwhile, domestic consumer spending by Malaysians has also slowed under an accumulated household debt that is 86% of the economy.

The WSJ reports that the pressure from falling commodity prices on the economy will be an obstacle to the vision of turning Malaysia into a high-income country with developed nation status by 2020.

This is because Malaysia’s economy expanded at the slowest rate in the third quarter, growing by only 5.6%, falling short of the 6.5% projected in the previous quarter.

The country needs to maintain an annual GDP growth of 6% until 2020, but economists are pessimistic this is possible with the looming uncertainties from falling commodity prices.

This has in turn also resulted in the ringgit dropping to a four-year low against the US dollar, the WSJ reported. – November 18, 2014.