OCBC sees oil price ‘relief’ for Malaysia

PETALING JAYA: OCBC Bank said oil prices will be on the road to recovery this year which would help to stabilise Malaysia's economy.
"As our house view has it, the oil price is on track to recover this year, with Brent back to US$55 (RM242) per barrel by year-end. If that pans out, it would be a huge relief for Malaysia," the bank said in its OCBC Global Outlook 2016 report yesterday.
OCBC said one of the reasons for the poor market sentiment towards the country last year was the perception that it is Asia's only net oil exporter, with its fiscal balance is most threatened by a drop in the oil price.
"Hence, if the oil price does recover forcefully, such concerns would dissipate," it added, noting that Malaysia would likely be printing growth rate of 4.7% year-on-year in 2016, which is in line with the growth rate target of 4.8% last year.
Its projections are slightly higher than the World Bank's, which anticipates that Malaysia's economic growth will slow to 4.5% in 2016 from 4.7% in 2015, on weaker domestic demand.
It said this in the World Bank's January 2016 Global Economic Prospects report released yesterday.
Its forecasts notwithstanding, OCBC did, however, point out that the oil price has shown more of a tendency to go down, and stay down, over the past 18 months.
"If the oil-driven adjustment happens in the next few months, it is in some ways a déjà vu given that January 2015 also saw a revision of budget deficit target – from 3% to 3.2% of gross domestic product – as the government found its earlier assumption of US$100 per barrel oil price simply untenable.
"In that round of revision, the fact that fuel subsidy was eliminated and yielded a one-time expenditure savings helped to keep the deficit revision relatively minimal," it noted.
Hence, the bank said, there is a risk that if the oil price stays depressed, fiscal expenditure may have to be slashed by more than before, in order to keep bond holders and rating agencies at bay.
Minister in the Prime Minister's Department Datuk Seri Abdul Wahid Omar reportedly said the government would reconsider proposed project expenditures, if oil prices stay depressed.
"Already, the Malaysian government appears to be preparing Plan B for when the oil price slips below its budget assumption of US$48 per barrel," OCBC said. Other than the price of oil, it added, the uncertainties of China's growth and its policy responses and more US interest rate increases are the two global factors that will have a negative impact on the Malaysian economy.