MALAYSIA is entering a period of heightened global uncertainty from a position of relative economic strength, providing policymakers with greater resilience to withstand external shocks, according to analysts.
However, economists caution that sustained high oil prices and potential disruptions to global supply routes, particularly the Strait of Hormuz, could still push the world economy towards recession, with Malaysia likely to feel the impact as an open trading nation.
Lavanya Venkateswaran, Senior ASEAN Economist at OCBC, said fiscal reforms implemented in recent years have begun to yield results, giving the government policy flexibility amid geopolitical tensions in West Asia. She noted that rising global oil prices pose risks to inflation, fiscal balances and logistics costs.
“The authorities have fiscal space to act while maintaining the RON95 subsidy under the Budi95 mechanism.
“Although monetary policy will remain flexible, the authorities are comfortable with the movement of the ringgit provided market functions remain orderly and sufficient liquidity is available,” she said in a research note.
She added that the government’s allocation of RM2 billion per month to keep the RON95 price at RM1.99 per litre under the Budi95 initiative, amounting to RM24 billion or 1.1 per cent of GDP, aligns with projections assuming global oil prices average US$100 per barrel in 2026. OCBC has maintained Malaysia’s economic growth forecast for 2026 at 4.4 per cent.
Meanwhile, Bank Muamalat Malaysia Bhd’s Chief Economist Dr Mohd Afzanizam Abdul Rashid said Malaysia has shown resilience through multiple economic crises, citing past contractions including a 5.5 per cent GDP decline during the Covid-19 pandemic in 2020, a 1.5 per cent contraction in 2009 following the US subprime crisis, and a 7.4 per cent drop during the 1998 Asian Financial Crisis.
“The key policies that will be deployed include monetary measures, such as reducing the Overnight Policy Rate (OPR) and steps to increase liquidity in the banking system.
“Fiscal policies will involve spending through fiscal stimulus programmes to boost domestic demand and stabilise the country’s economic growth,” he added.
Separately, UniKL Business School economic analyst Associate Professor Dr Aimi Zulhazmi Abdul Rashid warned that a prolonged or escalating conflict in West Asia could trigger a broader global crisis, especially if major powers become directly involved.
He told Berita Harian that a surge in crude oil prices to US$200 per barrel or higher would have severe consequences, sharply driving up inflation and increasing the cost of goods and services worldwide.
“Currency values would fall and consumer purchasing power would be eroded. Demand for imported goods would decline due to the doubling of goods and logistics costs, causing food prices to rise exponentially. Manufacturing factories, especially for exports, would be forced to close due to insufficient demand.
“The industrial value chain, including suppliers, wholesalers, and retailers, would collapse, and unemployment is expected to rise during this economic downturn,” he said.
Despite these risks, analysts maintain that Malaysia’s stronger fiscal position and policy tools provide a buffer, even as global conditions remain volatile and uncertain. - March 26, 2026
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