KUALA LUMPUR: Bank Negara Malaysia (BNM) expects Malaysia’s economy to grow between 4% and 5% in 2026, supported by strong fundamentals despite global uncertainties.
Governor Datuk Seri Abdul Rasheed Ghaffour said growth will be underpinned by strong domestic demand, supported by stable employment and income conditions, while external risks are cushioned by Malaysia’s diversified export base, firm semiconductor demand, tourism recovery and energy exports.
“Even under such scenarios, including the Middle East crisis, the baseline of the economy is able to cushion the impact,“ he told reporters at the Bank Negara Malaysia Annual Dialogue today.
BNM’s outlook is based on a baseline scenario of a short-lived conflict lasting one to two months, with oil prices ranging between US$70 and US$90 per barrel. It also factors in an adverse scenario of a more prolonged disruption lasting three to six months, in which oil prices could rise to between US$90 and US$110.
Under a tail-risk scenario in which the conflict extends beyond six months and causes severe supply disruptions, oil prices could exceed US$110, potentially prompting a revision to Malaysia’s growth outlook.
Abdul Rasheed said BNM has incorporated these scenarios into its assessment, based on the conflict’s duration and severity and its impact on oil prices. “We look at the extent of disruption and how long this conflict will last. Our baseline assumes one to two months, the adverse scenario three to six months, and the tail-risk scenario beyond six months.”
He said household consumption remains a key anchor of growth, supported by positive income prospects and a firm labour market, with unemployment expected to remain near its decade-low of around 2.9%, alongside targeted policy support.
Investment approvals rose to RM427 billion in 2025, with manufacturing project implementation rates at about 85%, reflecting strong execution and continued private-sector capacity expansion led by information technology and electrical and electronics, as well as progress in national masterplans and public infrastructure.
He said real export growth is expected to moderate to 2.8% amid external uncertainties, but Malaysia’s diversified export base – with no single country accounting for more than 16% of exports – and strong positioning in the global technology cycle, including artificial intelligence-driven demand, will provide support.
Tourism remains a key growth driver, having turned the services account into a surplus, with momentum expected to continue under Visit Malaysia 2026, although developments in the Middle East pose downside risks.
On inflation, Abdul Rasheed said headline inflation is projected at 1.5% to 2.5% in 2026.
“While global cost conditions remain uncertain, underlying inflation is expected to stay stable, supported by steady domestic demand, with policy measures helping to limit the pass-through of global cost pressures.”
Malaysia enters this period from a position of strength, supported by robust domestic demand, moderate inflation and a resilient financial system.
The economy grew 5.2% in 2025, anchored by resilient domestic demand, with household spending supported by a firm labour market and targeted policy measures.
Inflation averaged 1.4% in 2025, the lowest in five years, although cost-of-living pressures remain a concern.
The governor said the ringgit’s outlook remains positive this year, supported by Malaysia’s strong economic fundamentals and movements in the US dollar.
He said the country’s current account surplus and ongoing reforms will continue to support the local currency, alongside efforts to encourage the repatriation and conversion of export proceeds and investment income into ringgit.
However, he noted that the ongoing conflict in West Asia may have a temporary impact on the ringgit, largely driven by sentiment.
“More importantly, it is the strength of the fundamentals built over time. In the long term, investors will assess these developments,“ he added.
Abdul Rasheed said healthy capital inflows have returned, particularly into financial markets, supported by a more diversified investor base and renewed interest from overseas investors.
Meanwhile, deputy governor Adnan Zaylani Mohamad Zahid said the ringgit is expected to remain resilient, underpinned by strong fundamentals built over the past two to three years.
He said this is reflected in an active foreign exchange market with strong liquidity, allowing businesses to transact smoothly.
BNM will continue its engagement efforts, including encouraging companies to repatriate earnings, convert proceeds into ringgit, and promote its use as an operating currency, especially among multinational firms.
He added that new engagement initiatives aim to bridge gaps between the financial sector and the real economy, involving industries such as shipping, aviation and electrical and electronics.
“These efforts will strengthen financial intermediation and support industry, and will continue throughout the year,“ he said.