Overall, industrial production and manufacturing sales indicate strong performance amid of strengthening economic growth and modest recovery in crude oil prices.
KUCHING: In tandem with the modest recovery in crude oil prices, Malaysia’s Gross Domestic Product (GDP) growth expanded on an incline starting in the third quarter of financial year 2016 (3QFY16) with growth breaching the five per cent mark for three consecutive quarters in 2017.
In addition, exports growth has been growing on double digit pace for ten consecutive months since December 2016.
The team at MIDF Amanah Investment Bank Bhd (MIDF Research) saw that crude petroleum exports soared up by 32 per cent year on year (y-o-y) for the past nine months in 2017.
Besides the crude oil price recovery, improved global demand and receding protectionism threat are key factors supporting the upward trending.
“Overall, industrial production and manufacturing sales indicate strong performance amid of strengthening economic growth and modest recovery in crude oil prices.
“Sales of refined petroleum products rose by 33 per cent y-o-y for the first nine months in 2017, reaching its highest ever record,” the research firm added in a special report.
However, production of crude petroleum is hampered by the agreed production limit during the meeting of OPEC and non-OPEC in late 2016. In the agreement, Malaysia will commit to cut oil production by 20,000 barrels per day.
“Malaysia’s inflation is heavily dependent on crude oil prices, particularly motor gas – RON95 and RON97 – and diesel,” it added. “Slight changes in the price of retail fuel will affect transport prices and thus affecting food and non-food inflation.”
Looking ahead, MIDF Research anticipates strong inflation rate in the final quarter due to solid rise in prices of crude oil as well as retail fuel.
“The implications of rising crude oil prices are positive for the macroeconomic activity and government’s income. On the other hand, rising crude oil prices add financial pressure on those belonging to the lower income group.
“Given that Malaysia practices the managed-float fuel price mechanism in April 2016, upward changes in the fuel price adds inflationary pressure on the lower income group’s monthly household expenditure.
“The effect of rising crude oil prices is not only seen in retail fuel price, but has a knock-on effect on transportation costs.”