KUALA LUMPUR (Dec 5): Malaysia is unlikely to suffer a material hit to economic growth from the recent severe flooding, with fiscal consolidation expected to remain intact despite rehabilitation expenses, according to Moody’s Ratings.

The credit rating agency said that while large parts of Peninsular Malaysia were subject to heavy rainfall from Cyclone Senyar, the most severe impact was concentrated in the northern states of Kedah, Kelantan, Perak and Terengganu.

"As much of Malaysia’s manufacturing sector, which is largely concentrated in Selangor, Penang and Johor, was spared from disruption, we do not expect a material hit to economic growth, although agricultural output will likely weaken in the most affected states," Moody's said in its sector comment on South and Southeast Asian sovereigns on Friday.

"Expenses related to rehabilitation and reconstruction are likely to be absorbed by the current budget, keeping the fiscal consolidation trend intact," it added. 

The recent flooding, which intensified from late November amid the northeast monsoon, saw more than 20,000 people evacuated across eight states, including Selangor, Perak and Penang. Heavy rainfall during the monsoon season in the past was usually confined to the east coast of the peninsula and parts of Johor.  

Moody’s pointed out that the broader flooding event across the region highlights sovereign credit vulnerabilities to physical climate risks over the longer term, particularly given limited natural catastrophe insurance coverage.

Sri Lanka faces the most material economic and fiscal impact, after Cyclone Ditwah damaged critical infrastructure, disrupted supply chains and weighed on key sectors such as tourism, agriculture and manufacturing, stymying its post-default fiscal consolidation efforts.

In Indonesia, flooding linked to Cyclone Senyar hit infrastructure and agricultural production in Sumatra, with gross domestic product (GDP) losses estimated at around 0.3%, which could weigh on growth forecasts of 4.7% for 2025 and 2026.

Moody's further noted that Vietnam experienced massive floods and landslides that destroyed nearly 200,000 acres of crops, with tourism likely to be hindered and some fiscal slippage possible as rescue and repair efforts continue.

Thailand’s southern provinces, meanwhile, are expected to see contained macroeconomic effects despite widespread damage, as the hardest-hit areas account for less than 3% of GDP, though rubber output and exports could weaken in the near term.

The Philippines saw more localised flooding, but multiple La Niña-driven events disrupted agriculture, the outsourcing sector and infrastructure, contributing to weaker third-quarter economic growth.