The Red Sea Shipping Crisis is an ongoing conflict that threatens to impact trade dynamics all over the world. Benedict Weerasena, Research Director of Bait Al Amanah was recently interviewed by Free Malaysia Today on the broad-ranging consequences anticipated for the Malaysian economy due to the Red Sea Crisis.
Weerasena explained that trade dynamics in Malaysia as the world’s top 25 trading nations will be impacted, as the Red Sea Crisis disrupts one key Asia-Europe trade route. Driven by the necessity of rerouting via the Cape of Good Hope, there will be an immediate impact of delays in delivery times, challenges in inventory management, heightened shipping costs and an increase in insurance rates. However, the medium to long-term impact depends on the ability of Malaysian manufacturers to adopt alternative transportation routes or transition towards sourcing from regional neighbours through nearshoring. Owing to the availability of alternatives in addition to a stronger trade orientation towards the Eastern Hemisphere, the overall effects on Malaysia’s economic growth and employment levels will be minimal. This is the case unless the Red Sea Crisis prolongs and escalates further into a wider regional conflict. If that happens, I foresee greater volatility in global trade and growth, which will certainly impact Malaysia as an open economy. In addition, the ringgit will likely weaken, due to increasing demand for the dollar as a favoured reserve currency in times of crisis.
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Photo Credit: BBC Future