KUALA LUMPUR (Mar 4): The recent sharp decline in energy prices is expected to have just “a modest negative impact” on Malaysia’s near-term growth prospects and lower its current account surplus, said the International Monetary Fund (IMF).

This was because although lower commodity prices will be a drag on the Malaysian economy, manufacturing exports should get a boost, aided by a weaker exchange rate and higher growth in the US, it said in its IMF Staff Report today. 

“Prospects for Malaysia’s well-diversified economy are favorable, despite lower prices for its exports of energy and other commodities. Growth is expected to moderate in 2015 to 4.8%, from 5.9% in 2014.

It said economic activities will be led by growth in private investment in the non-oil sector, which is likely to benefit from lower energy costs. Private consumption growth is likely to moderate, reflecting the net effects of lower commodity prices, the impact of the upcoming Goods and Services Tax (GST), and slower credit growth.

“Headline inflation will increase slightly to 3.2% in 2015, from 3.1% in 2014, reflecting the net impact of subsidy rationalisation, GST implementation, and exchange rate depreciation,” it said, adding that inflationary pressures should remain subdued, aided by lower oil and gas prices.

It went on to say that Malaysia’s current macroeconomic policy mix is “appropriate”.

“Fiscal consolidation is well-timed, appropriately paced, and remains on track. While monetary policy is on hold reflecting increased global uncertainty, a market-driven tightening of domestic liquidity and financial conditions is under way,” it observed.

It noted however, that high house prices and household debts remain a concern, “although rising real interest rates should dampen growth of financial risks”.

It also said Bank Negara Malaysia is pro-actively managing the risks through stress-testing, enhanced supervision and targeted macroprudential policies, but even so, it said “further macroprudential measures may be needed”.

It forecasts Malaysia’s current account will remain in a “comfortable” surplus of 2.9% of GDP in 2015 — despite the weaker energy prices — but if Tapis crude continues to trade below US$60 per barrel, “the (country’s) revenue loss would be larger and additional measures would be needed to meet the deficit target of 3.2% of GDP,” said IMF.

When the government revised 2015’s budget, it revised Tapis’s average price at US$61 per barrel, from US$105.