The Malaysian economy may underperform its regional peers in 2016, according Morgan Stanley Research.

Malaysia is the only major crude oil exporter in the region and the recent steep decline in the price of crude oil is hurting the country the most.

Meanwhile, weaker demand from overseas have resulted in lower exports.

Morgan Stanley yesterday lowered its gross domestic product (GDP) forecast for Malaysia to between 4.2% in 2016 and 4.6% in 2017.

Other Asean economies are already further advanced in the downcycle compared to Malaysia.

“While commodity prices such as coal or crude palm oil started rolling over in 2011/2012, prices of oil, which is the single-most-important commodity for Malaysia, began to drop only towards the end of 2014, with material declines continuing into this year,” said Morgan Stanley Research in its Spring Asean Economic Outlook Report.

The firm said the softer-than-expected external demand environment was casting a cloud over Asean exporters, especially Malaysia, where exports make up 67% of GDP while non-commodity exports make up 48% of GDP.

Non-commodity exports were showing mostly accelerating double-digit growth in the second half of 2015 due to machinery and transport, manufactured goods and miscellaneous manufactured articles.

However, momentum softened considerably in January 2016 as a result of the same segments, amid the downside surprise in global growth.

Some investors have been positively surprised by how Malaysia does not appear to be as badly hurt as other commodity or oil exporters such as Russia and Brazil.

Saudi Arabia, Russia and Malaysia are large oil exporters, with mining GDP share at 26%, 11% and 9%, respectively, in 2015, while oil and gas trade surplus was at 38% of GDP (2014), 16% (2015) and 4% (2015) respectively.

In this context, Saudi Arabia should have been most badly hurt by the recent collapse in oil prices.

However, Saudi Arabia’s and Malaysia’s GDP growth held at 3.4% and 5% in 2015 while Russia’s growth declined by 3.7% year-to-date as at third quarter of 2015.

“Reflecting weaker external demand and the terms-of-trade shock from oil and its cascading impact on domestic demand, we are revising our 2016 and 2017 Malaysia GDP growth forecasts from 4.5% and 4.8% to 4.2% and 4.6% respectively,” said Morgan Stanley Research.