KUALA LUMPUR: The ASEAN+3 growth outlook has effectively weakened despite an unchanged headline forecast as elevated oil prices and escalating West Asia tensions continue to raise downside risks to the regional economy, according to the ASEAN+3 Macroeconomic Research Office (AMRO).
AMRO Group head and lead economist Allen Ng said the grouping’s growth projection remains at around four per cent this year, but noted that the figure masks a softer underlying trajectory.
"In the absence of the current Middle East conflict, we would have upgraded our growth forecast. Instead, we now see growth lower and inflation higher,” he said in an interview with Bernama recently.
Ng said the ongoing energy shock, one of the most significant in decades, is expected to keep oil prices elevated above US$90 per barrel until June, before easing gradually towards US$80 by year-end in the baseline forecast.
However, he cautioned that risks remain heavily skewed to the downside amid high uncertainty surrounding the evolution of the conflict.
Under a more adverse scenario where oil prices stay above US$100 per barrel for a prolonged period, AMRO estimates that regional growth could be reduced further while inflation rises to its highest levels since 2022, he added.
"The downside risk is very high. The situation could be worse than what our models suggest, especially if supply disruptions extend beyond energy to industrial inputs such as fertilisers and petrochemicals,” he added.
Despite the external headwinds, Ng said the region including Malaysia has entered the current episode from a position of strength, supported by resilient growth momentum, stable inflation and improving export performance, particularly in technology-related sectors.
Malaysia, as a net energy exporter, is relatively better positioned compared with some regional peers, but Ng highlighted that no economy would be immune to the broader impact of the conflict.
Turning to policy, he said the current environment presents a window of opportunity for governments to accelerate subsidy reforms, particularly as higher oil prices increase the fiscal burden of broad-based support measures.
"When oil prices are around US$70 per barrel, subsidy reform is already the right thing to do. At US$100, it becomes urgent,” he said, adding that targeted support for vulnerable households and businesses would be more effective and sustainable.
On monetary policy, Ng said central banks in the region may look through the supply-driven inflation shock if it proves temporary, but would need to act if price pressures become more broad-based and entrenched.
He added that while short-term capital flows may remain volatile amid heightened global risk aversion, Malaysia’s strong external buffers and deep domestic financial markets are expected to help cushion such fluctuations.
Looking ahead, Ng said policymakers face the dual challenge of managing near-term shocks while strengthening long-term resilience, particularly in energy security and supply chain diversification.
"Resilience itself is becoming a source of competitiveness. Economies that can offer reliability and continuity will be better positioned to attract investment going forward,” he said. - Bernama
