By Rozanna Latiff and Danial Azhar
KUALA LUMPUR, March 31 (Reuters) – Malaysia’s economy is on track to grow faster in 2026 than initially projected, the central bank said on Tuesday, despite trade disruptions and higher fuel prices caused by the conflict in the Middle East and U.S. tariffs.
Bank Negara Malaysia now expects economic growth of between 4%-5% this year, revising its forecast slightly upwards from 4%-4.5%, supported by strong household spending, sustained demand for electrical and electronic exports, and steady tourism, according to documents released along with its annual report for 2025.
While various scenarios from the Middle East conflict had been factored into its 2026 growth forecast, the central bank said a prolonged war would pose risks to its outlook.
“If things really get bad… of course we will look at this and if there’s a need (to) revise the growth forecast,” BNM Governor Abdul Rasheed Ghaffour told a press conference.
UPBEAT GROWTH OUTLOOK
The increase at the top end of the growth estimate is at odds with wider trends from the war that have seen other countries trim forecasts, and follows a period of strong economic performance in Malaysia. Gross domestic product rose 5.2% in 2025, surpassing the government’s expectations, as the country posted record value of trade and approved investments.
Abdul Rasheed said Malaysia’s status as a net energy exporter and fiscal reforms undertaken last year were expected to provide some buffer against the war’s economic impact.
Domestic financial conditions were expected to remain favourable due to strong economic fundamentals, a deep domestic institutional investor base and a well-capitalised banking system, BNM said in its 2025 economic and monetary review.
“Malaysia is facing the conflict from a position of strength, characterised by robust domestic demand, moderate inflation, a sound financial sector and a resilient external position,” the central bank said.
Inflation was expected to remain moderate in 2026, in part due to policies aimed at cushioning the impact of rising commodity and energy prices, BNM said.
Malaysia’s subsidy bill has soared since the war began. The government is now expected to spend 4 billion ringgit ($994 million) a month, compared to 700 million ringgit previously, to maintain a fixed price for the widely used RON95 transport fuel as well as provide cash assistance for some diesel vehicle operators.
Headline inflation is expected to average between 1.5% to 2.5% in 2026, ticking up from 1.4% last year, the central bank said.
Core inflation is forecast to average between 1.8% to 2.3% this year, compared to 2% in 2025.
READY TO RESPOND
BNM said its monetary policy committee was ready to respond to developments in the Middle East war “to ensure orderly markets and manage risks of excessive volatility.”
The central bank kept its key interest rate unchanged at 2.75% for the fourth straight meeting earlier this month. It last cut its main policy rate in July 2025.
Abdul Rasheed said while the war would cause volatility in the ringgit, the overall outlook for the currency was positive. The ringgit has been among Asia’s best performers in the past 12 months, reaching its highest levels against the U.S. dollar since 2018 in February, though it has weakened since the start of the war.
($1 = 4.0260 ringgit)
(Reporting by Danial Azhar and Rozanna Latiff; Editing by John Mair)
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