Malaysia’s economic growth dips to 5.3% on early signs of Iran war fallout; inflation ticks up

KUALA LUMPUR - Malaysia’s economy expanded at a slower-than-expected pace in the first quarter of 2026 as the Middle East conflict began to weigh on the nation’s major industries, including manufacturing and services.

Gross domestic product (GDP) rose 5.3 per cent in the January to March period from a year earlier, according to advance estimates from the Department of Statistics Malaysia on April 17. That compares with the 5.5 per cent median estimate in a Bloomberg survey and 6.3 per cent growth in the last quarter of 2025.

The data serves as an early barometer as Asia assesses the extent of the economic fallout from the Iran war, which is now in its seventh week. Singapore reported on April 13 that its GDP growth slowed considerably in the first quarter, and warned that the conflict would continue to weigh on economic activity in the coming months.

Still, Malaysia’s first-quarter growth comes in well above the government’s full-year forecast of 4 per cent to 4.5 per cent and the expected performance of most major Asian economies. The statistics department cited the boom in artificial intelligence as a bright spot, noting rising demand for data centre and generative AI-related activities.

“Malaysia’s first quarter of 2026 reflects an economy that remains fundamentally resilient, even with the rising global uncertainties, particularly elevated oil prices following the geopolitical tensions,” Malaysia’s chief statistician Mohd Uzir Mahidin said in a statement.

The Iran war has all but paralysed the Strait of Hormuz, a vital waterway for shipments of crude oil, natural gas and petrochemicals, the bulk of which go to Asia. Physical shortages threaten to stall production at Asia’s factories, while the spike in commodity costs has already triggered higher transport, logistics and food prices in some places.

Malaysia saw inflation accelerate to 1.7 per cent in March, the fastest pace in more than a year, with transport costs among the key drivers. The government heavily subsidises petroleum prices, though it cut back Malaysians’ fuel quota in March when the war sent Brent to over US$100 a barrel.

To be sure, Malaysia is seen as among the best placed in the region to weather the uncertainty. Its production of natural gas offsets its imports of petroleum products, and the continued global appetite for chips boosts its manufacturing sector.

Bank Negara Malaysia in March said economic growth could expand 4 per cent to 5 per cent in 2026 due to strong domestic demand and investment. The central bank will next decide on its policy rate on May 7.

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 a new-found darling of global investors. BLOOMBERG