PETALING JAYA: While the direct implications of the US-Iran conflict have not yet materialised in the domestic landscape, the Malaysian Institute of Economic Research (MIER) cautioned that the effects are likely to emerge in the near term.
MIER, after conducting consultations with industry players and businesses, government-related enabling agencies, the financial sector, chambers of commerce and business councils, and civil society organisations, gathered views on the implications of the US-Iran conflict for the Malaysian economy.
The think tank said in a statement that there was broad agreement that logistics expenses and input costs are expected to rise, and these increases will soon translate into higher living costs.
These pressures are expected to affect business performance over the next two to three months, particularly among SMEs.
MIER also noted that participants in the dialogue reported isolated instances of fuel shortages at petrol stations and the closure of some construction companies, highlighting the broader repercussions across the economy.
“Sectors such as agriculture, printing, food services and small-scale enterprises are expected to be particularly affected, with some businesses already beginning to feel the impact.
“Implications were also highlighted in relation to food security, including concerns over fertiliser shortages, rising diesel prices for agricultural machinery, and recent drought conditions in Kedah.
“These factors may contribute to disruptions in the food supply chain and affect national food self-sufficiency,“ organisation said.
MIER said the conflict has disrupted a key trade route for Russian fertiliser exports, while China has initiated a fertiliser export ban, raising concerns over the outlook for fertiliser costs.
Russia and China are the two largest exporters of fertiliser to Malaysia, together accounting for more than 45% of imports in 2024.
In this context, MIER said, there is a need to strengthen domestic food production, particularly in light of declining yields, prolonged dry weather conditions and constrained fertiliser supply.
“Participants generally agreed that prolonged conflict could increase the likelihood of insolvencies, bankruptcies and business failures across vulnerable sectors.
“It was also suggested that the government adopt a more pre-emptive approach to managing these risks should economic conditions deteriorate further,“ MIER said.
The institute said this awareness of potential challenges has prompted trade associations, the financial sector, and enabling agencies to stand ready to support their members and clients, particularly SMEs.
“With regard to financing, it was noted that microfinancing schemes and assistance for SMEs are available.
“The banking system has also introduced targeted repayment assistance programmes to support viable businesses facing temporary financial difficulties.
“Furthermore, enabling agencies and the financial sector indicated that they are actively monitoring signs of portfolio distress, drawing on experience from past crises, including Covid-19,“ MIER noted.
However, it said access to information and support programmes remains fragmented and limited.
Drawing on examples from past crisis-related funding interventions, MIER noted that significant allocations have not always reached certain categories of SMEs effectively.
MIER said that it was therefore suggested that relevant information could be better disseminated through business bodies and associations to improve accessibility for affected enterprises.
“The fiscal space is considered relatively constrained; therefore, any fiscal assistance should be temporary in nature, such as targeted reductions in taxes and fees.
“In addition, with respect to relief measures, it was proposed that adjustments to the Budi95 subsidy mechanism could allow savings to be redirected towards reducing diesel prices for SMEs and businesses,“ MIER said.
Furthermore, streamlining and temporarily reducing the Sales and Service Tax rate to 5% over the next two years, with exceptions for liquor, cigarettes and gaming, could help ease cost pressures for consumers and businesses.
MIER said another proposed fiscal balancing measure involves the gradual reduction of RON95 subsidies, with savings reallocated to subsidise diesel consumption for businesses. This would help ease the cost of doing business, particularly for SMEs reliant on diesel fuel for machinery and logistics.
MIER also proposed that the government consider reducing stamp duties for business restructuring and repayment to a standardised rate to assist businesses and reduce the cost of doing business in the country.
“As Malaysia looks to Asean to bolster its trade ecosystem, it would not hurt to look at Asean-adjacent trading partners such as Australia for enhanced trading ties,“ it said.
MIER noted that in 2024, total trade with Australia was valued at US$7.3 billion (RM28.9 billion), with Malaysia enjoying a surplus of about US$3.5 billion.
In light of ongoing geopolitical turbulence in the Middle East, MIER said, technology firms are seeking to relocate operations to Asia, and Malaysia is well-positioned to capitalise on this development.
This trend could be further leveraged through recent investments in technology infrastructure and the development of high-value industries in the Johor-Singapore Special Economic Zone, it said.
“To support exporters, a more active role in strengthening export-oriented industries is an important priority for enhancing Malaysia’s export earnings.
“The banking system and institutions such as the Export-Import Bank of Malaysia will need to remain nimble in supporting the economy, especially with uncertainty surrounding global trade terms, commitments to long-term infrastructure development and security of the population, and increasing competition as countries pivot and diversify,“ MIER said.
“A crisis, or an impending crisis, also presents an opportunity to review current practices and evolve in response to the changing demands of business,“ it added.
