MALAYSIA’S economic recovery is likely to take a hit with the ongoing war between Russia and Ukraine, economists warned.

They said prices of feedstock and commodities, including oil, will shoot up and consumers in Malaysia will feel the pinch.

It can also cause inflation to rise sharply, they said.

They said Malaysians should not think that the war is happening “somewhere far” and, therefore, will not affect Malaysia or this region economically.

Socio-Economic Research Centre executive director Lee Heng Guie told The Malaysian Insight that the war will pose risks to the country as a whole, as it will lead to higher prices of commodities.

“Simply put, those who do business have to face higher trading costs and, coupled with inflation, it will directly or indirectly impact consumer consumption,” he said.

He cited the example of oil and natural gas, which he said their global prices are already rising.

“The rise in oil prices is a good thing for the government; revenue will increase. Yes, Malaysia is an oil producer but it must also increase subsidies for RON95 petrol, gas and cooking oil.

“In the end, the government still has to provide more subsidies, resulting in a hole in its revenue.”

In addition, he said, some metal products commonly used in industry are produced in Russia, which he said will also soar in price at this time.

“When the prices of these items go up, it’s going to push up the cost of doing business and, thus, lead to inflation,” he said.

Malaysia’s exports to Russia account for only 0.3% of the total export value while the import value accounts for 0.4%, which has little impact.

Hitting the domestic poultry industry

Lee said Malaysia mainly exports electronic and electrical products to Russia and imports fertilisers and animal feed.

“At this time, people who are in import businesses will have to pay higher costs. If they can’t absorb them, they will eventually be passed on to consumers,” he said.

PhillipCapital chief strategist Phua Lee Kerk said the Russia-Ukraine conflict is a double-edged sword, having both positive and negative effects.

“On the positive side, the surge in the prices of crude products such as crude oil and palm oil has a slight positive impact on Malaysia. But on the other hand, there are also a lot of negative effects,” he said.

This is especially so when the price hike of animal feed is involved, as it will affect the domestic poultry industry and cause inflation.

“It’s not a problem that can be solved by the government by subsidising fuel prices. Of course, the government can set a ceiling price, but as before, it will cause a shortage of chicken and eggs.”

He said to a certain extent, if inflation persists, it will affect the spending power of consumers, particularly as the Malaysian economy has to gradually overcome the effects of the Covid-19 Omicron variant wave and move towards recovery.

“The epidemic has already caused inflation in our country. Now, this war will definitely exacerbate the problem and cause another major blow to consumption,” he said.

On February 24, Russian President Vladimir Putin announced an “military operation” in Ukraine. – March 3, 2022.