Kuala Lumpur — Economists have thrown their full support behind the Malaysian government’s appeal for citizens to spend more wisely, as the country grapples with supply-driven inflation caused by global disruptions, particularly in crude oil supply.
The government’s advice comes as experts warn that overly aggressive stimulus or unchecked demand could worsen the current supply shock and trigger even higher inflation.
Lee Heng Guie, executive director of the Socio-Economic Research Centre (SERC), described the situation as a classic supply shock, noting that subsidies are currently cushioning households from the full impact of rising fuel costs.
“You have a supply shock. Now, we don’t feel that yet because subsidies are buffering the impact, so it hasn’t really hit your pockets. But inflation has started to creep up and the cost of living will remain elevated,” Lee said.
He cautioned against broad-based stimulus measures, saying they could add pressure to already constrained supplies and spark a dangerous second round of inflation.
“You don’t want to add fire to demand when you have a supply shock. We are not reaching a point that is so critical that the government needs to do a big stimulus to get consumers to spend,” he added.
With Malaysia’s unemployment rate remaining low at around 2.9%, Lee believes the economy does not require urgent aggressive intervention at this stage. He also advised against rushing to cut interest rates, urging a “wait-and-see” approach as the duration of the supply constraints remains uncertain.
Khazanah Research Institute chairman Nungsari Ahmad Radhi compared the current crisis to the 1974 Arab oil embargo, emphasising that the core problem is supply, not demand.
“The problem is a supply constraint — we don’t have the same levels of supply of crude oil that we need because of the war. Without crude oil, our refineries lack the feedstock to produce petrol, diesel, jet fuel and other petrochemicals,” he explained.
Nungsari noted that Malaysia’s crude oil reserves are expected to last only until June, making conservation efforts critical. He called for reduced consumption of fuel and related products to stretch existing supplies.
He warned that if the crisis drags on, Malaysia could face stagflation — a combination of slower economic growth and persistent high inflation — which could eventually affect both consumption and production.
Bank Muamalat Malaysia chief economist Mohd Afzanizam Abdul Rashid acknowledged that private consumption makes up nearly 60% of Malaysia’s GDP, so any sharp drop in consumer spending could slow the economy. However, he clarified that the government’s message is about being prudent, not stopping spending altogether.
“The advice is about being prudent in their spending, not to stop the spending,” he said, adding that government spending will play a vital role in supporting the economy during this period of uncertainty.
The government has already introduced measures such as targeted subsidies, cash aid, and initiatives to reduce fuel usage, including encouraging work-from-home arrangements. Economists generally agree that these steps represent the right approach in “crisis mode” while the country’s economic fundamentals remain intact.
Businesses are reportedly absorbing some cost increases for now in hopes of stabilisation, but experts advise against complacency, noting that full recovery could take six to eight months even if global tensions ease.
Malaysians are encouraged to adjust their spending habits, prioritise essentials, and support conservation efforts as the nation navigates this supply-side challenge.
