BNM Sees Malaysia’s 2026 Growth Holding at 4.5% Despite War Risks

KUALA LUMPUR, March 31 — Malaysia’s central bank has maintained confidence in the country’s economic outlook, projecting that Malaysia’s economy will grow around 4.5 per cent in 2026, despite growing global uncertainties and the ongoing geopolitical tensions affecting international markets.

Bank Negara Malaysia (BNM) said the country’s economic momentum is expected to remain steady this year, supported primarily by strong domestic consumption, stable export demand, and continued growth in tourism and investment activity.

The central bank noted that while global risks remain elevated — particularly due to the prolonged conflict in the Middle East and trade tensions — Malaysia’s diversified economic structure and stable financial system are expected to help cushion potential shocks.

BNM Governor Abdul Rasheed Ghaffour said Malaysia is approaching the current geopolitical challenges from a relatively strong economic position, with resilient domestic demand and a well-capitalised banking sector providing stability to the broader economy.

Malaysia’s economy expanded by 5.2 per cent in 2025, exceeding earlier expectations and giving policymakers greater confidence about the country’s economic resilience heading into 2026. Strong exports of electrical and electronic products, alongside recovering tourism activity and steady investment inflows, were key drivers behind last year’s growth performance.

However, BNM acknowledged that the ongoing geopolitical tensions — particularly the conflict involving Iran and its wider regional implications — could still pose risks to the country’s economic outlook if the situation worsens or continues for an extended period. Rising energy prices, trade disruptions, and financial market volatility remain among the key concerns being closely monitored by policymakers.

Despite these challenges, the central bank believes Malaysia is better positioned than many economies to absorb external shocks. One factor supporting this outlook is Malaysia’s status as a net energy exporter, which means higher global oil prices could partly offset the economic impact of rising import costs and geopolitical instability.

BNM also expects inflation in Malaysia to remain manageable this year. Headline inflation is forecast to average between 1.5 per cent and 2.5 per cent in 2026, slightly higher than the previous year but still within a controlled range. Core inflation is projected to average between 1.8 per cent and 2.3 per cent, reflecting relatively stable domestic price pressures.

The government has also stepped in to cushion the impact of rising energy costs on households and businesses. Authorities have significantly increased spending on fuel subsidies and financial assistance programs to stabilise domestic fuel prices and support certain sectors affected by rising operational costs.

Meanwhile, BNM said it remains ready to respond if global developments threaten financial stability. The central bank recently maintained its overnight policy rate at 2.75 per cent, marking the fourth consecutive meeting where the benchmark interest rate was left unchanged. Policymakers said the current stance remains supportive of economic growth while ensuring inflation remains under control.

Although the ongoing geopolitical conflict has contributed to fluctuations in the Malaysian ringgit, BNM expressed confidence that the currency’s long-term outlook remains stable due to strong economic fundamentals and a deep domestic financial market.

Looking ahead, policymakers say Malaysia’s economic prospects will continue to depend on both domestic and global developments. While uncertainties remain, the central bank believes that strong domestic demand, steady export performance, and ongoing structural reforms will help sustain economic momentum in the coming years.