Gold is heading for its worst weekly performance in over four decades , as escalating Middle East tensions drive higher oil prices, rising bond yields, and a stronger US dollar , eroding demand for the non-yielding asset. Sharp Selloff Driven by Rate Expectations Gold prices dropped sharply, with bullion falling over 3% to around US$4,509 per ounce , marking an eight-day losing streak . The key driver has been a shift in monetary expectations: Markets now see a 50% probability of a rate hike by October Expectations for rate cuts have diminished significantly Higher interest rates reduce gold’s appeal, as it does not generate yield , making it less attractive compared to bonds and cash. War Escalation Fuels Inflation and Dollar Strength The ongoing conflict in the Middle East — including potential US ground troop deployment and increased military presence — has pushed energy prices higher , reinforcing inflation risks. As a resu...
Maybank Research has downgraded its outlook for Southeast Asia, warning that rising energy prices and supply disruptions linked to Middle East tensions are triggering a stagflationary shock across the region.
Growth Forecasts Lowered Across ASEAN-6
The research house now expects ASEAN-6 GDP growth at 4.5% in 2026 and 4.7% in 2027, down from previous forecasts of 4.8%.
The biggest downgrades were seen in:
- Philippines and Vietnam (-0.4ppt)
- Thailand (-0.3ppt)
The revisions reflect the growing impact of higher energy costs and supply chain disruptions on economic activity.
Inflation Pressures Intensify
At the same time, inflation forecasts have been revised upward:
- 2026 inflation: 2.7% (vs 2.2% previously)
- 2027 inflation: 2.7% (vs 2.5%)
The largest inflation increases are expected in Thailand, the Philippines, and Indonesia, driven by higher fuel and commodity prices.
Monetary Policy Shift: Easing Cycle Disrupted
The energy shock is expected to halt or reverse monetary easing across the region.
Key policy expectations:
- Philippines likely to hike rates by 25bps
- Singapore may tighten via currency appreciation
- Other ASEAN central banks likely to pause through 2026
This marks a shift toward a more cautious or tightening bias, as inflation risks rise.
Malaysia and Singapore More Resilient
Among ASEAN economies:
- Malaysia benefits as a net energy exporter, cushioning external shocks
- Singapore’s strong fiscal reserves provide policy flexibility
However, Malaysia still faces rising fiscal pressure due to fuel subsidies.
Fiscal Risks Rise with Higher Oil Prices
Elevated oil prices are expected to strain government finances:
- Every US$10 increase in oil could raise Malaysia’s RON95 subsidy bill by RM1.5–2 billion
- Monthly subsidy costs could rise to ~RM3.2 billion
Countries like Indonesia and Thailand may also face challenges in maintaining fiscal discipline amid subsidy burdens.
Energy Shock Likely Temporary, But Risks Persist
Maybank Research expects oil prices to average:
- US$75 in 2026
- US$70 in 2027
Markets are pricing in a potential ceasefire, suggesting the shock may last 1–2 quarters.
However, risks remain if the conflict prolongs, especially given disruptions in:
- Oil and gas supply routes
- Fertilisers and petrochemicals
- Regional industrial supply chains
Investor Takeaways
- ASEAN growth forecasts have been cut due to an energy-driven stagflation shock.
- Inflation is rising, forcing central banks to pause or tighten policy.
- Philippines and Vietnam are most exposed, while Malaysia and Singapore are relatively resilient.
- Higher oil prices will increase fiscal pressure, especially via subsidies.
- The duration of the shock depends on geopolitical developments, with downside risks if disruptions persist.
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