KUALA LUMPUR (March 10): AmBank Group Research said the reliance on oil revenue leaves the Malaysian economy vulnerable to global oil market movements, and could cost the country up to RM12.6 billion revenue from weak oil price.
In a thematic note today, AmBank Group chief economist and head of research Dr Anthony Dass said the risk stems from the government's estimate in Budget 2020 that the Brent oil price will be at US$62 per barrel.
Dass, who is also an adjunct professor in economics at the University of New England, Sydney, Australia, said for every US$1 per barrel drop in the oil price, it will reduce oil revenue by RM300 million.
“Thus, pressure on the fiscal deficit/gross domestic product (GDP), which is now at 3.4%, could rise to 3.6%–3.8% of GDP based on an RM8.1 billion loss in revenue.
“With the risk of the oil price weakening to US$20–25 per barrel, it could increase our revenue loss by RM11.1–RM12.6 billion,” he said.
Dass added there can be a challenge to further ease the monetary policy.
He said that with a more flexible exchange rate, further easing of the policy rate is likely to add pressure on the ringgit to weaken against the US dollar.
“In part, this is because the ringgit is vulnerable to the movement of oil prices.
“A cheap ringgit due to falling oil prices compounded with monetary easing poses risk on potential inflationary pressure driven by higher import cost. This will not augur well in a slower economic growth environment,” he said.
On the growth outlook, Dass said that underpinned by current external headwinds and domestic challenges, AmBank’s base-case growth projection for 2020 is between 2.5% and 3.0%, with an upside of 3.8%.
“Given the external challenges, much will now depend on how fast and effective the stimulus package as well as Budget 2020 initiatives are rolled out as these will help shore up the current weak consumer and business confidence and an increasingly tougher job market.
“The oil price’s impact on the GDP is about 0.02% for every 1% change in price,” he said.