Malaysia raises 2026 growth outlook, sees Iran war impact contained

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KUALA LUMPUR – Malaysia lifted its economic growth forecast range for 2026, expecting strong domestic demand and investment to cushion the impact of the escalating war in the Middle East.

The economy is seen expanding between 4 per cent and 5 per cent in 2026, Bank Negara Malaysia (BNM) said in its annual economic and monetary review released on March 31. That compares with the government’s October forecast of 4 per cent to 4.5 per cent.

“Malaysia’s domestic resilience and diversified export structure provides us with a solid foundation to navigate current external headwinds,” BNM governor Abdul Rasheed Ghaffour said in a foreword of the annual report. 

Malaysia surpassed its own economic growth estimates in 2025, overcoming challenges posed by US tariffs to emerge as one of the most resilient economies in Asia and the newfound darling of global investors. Gross domestic product rose 5.2 per cent as it attracted record-high investments.

The central bank expects sustained global demand for Malaysia’s technology exports, steady tourism and its status as a net energy exporter to help buffer the economy against risks from the war, which shows little sign of abating.

“Developments in the Middle East have added another layer of uncertainty with potentially far-reaching spillovers, given implications on commodity prices and financial market conditions,” Mr Rasheed said. “The extent of impact on growth and inflation is highly contingent on the duration, intensity and severity of the conflict.”

For now, the central bank expects inflation to remain moderate between 1.5 per cent and 2.5 per cent in 2026, higher than the government’s forecast of 1.3 per cent to 2 per cent. The consumer price index averaged 1.4 per cent in 2025, the lowest in five years. 

While a prolonged war could drive commodity and energy prices higher and feed inflation, Mr Rasheed said BNM will “remain vigilant”. The central bank remains committed to keeping inflation low while supporting the economy, he said.

Domestic demand will continue to be a key engine of growth, as it did in 2025, with better employment, wage growth and measures that supported household spending. Despite the surge in crude oil, Prime Minister Anwar Ibrahim’s government has kept the subsidised price of Malaysia’s most popular petrol unchanged at RM1.99 per litre, while cutting the monthly quota for the fuel to 200 litres from 300 litres per citizen. 

“We expect the global environment to remain uncertain, with many moving parts shaping domestic economic conditions,” Mr Rasheed said. “Despite this, Malaysia’s economy is projected to remain on a firm footing, supported by resilient domestic demand.”

That’s reflected in the Malaysian ringgit which remains the top performing currency across Asia in the past 12 months, even after weakening since the war began on Feb 28. Despite bouts of volatility in the currency market, policymakers will continue to preserve stability, according to the central bank chief. 

“The Monetary Policy Committee will continue to closely monitor developments and assess the balance of risks to the growth and inflation outlook,” Mr Rasheed said. “We also stand ready – as we have through successive periods of heightened uncertainty – to ensure orderly markets and manage risks of excessive volatility.” BLOOMBERG