Kuala lumpur: Bank Negara Malaysia (BNM) has incorporated potential scenarios from the ongoing West Asia conflict into its projections for economic growth and inflation through 2026, announced Governor Datuk Seri Abdul Rasheed Ghaffour. 'We have taken up on board some of the possible changes in our scenarios. The government is assessing it in a holistic manner,' he stated when addressing the central bank's outlook amidst the conflict.
According to BERNAMA News Agency, despite potential external shocks, BNM maintains its growth outlook at 4-5 percent for this year, supported by Malaysia's solid economic fundamentals. The announcement came after Malaysia reported a 5.4 percent growth in its first quarter (1Q) gross domestic product (GDP). The World Bank, ASEAN+3 Macroeconomic Research Office (AMRO), and the International Monetary Fund (IMF) also project Malaysia's growth within this range, forecasting 4.4 percent, 4.6 percent, and 4.7 percent, respectively.
Malaysia's status as a net energy exporter provides a cushion against external pressures. Its economy is supported by diversified growth drivers, firm domestic demand, and robust exports. The country benefits from strong growth momentum carried over from the last quarter of 2025 and the first quarter of 2026, underpinned by resilience in the electrical and electronics sector.
The ongoing AI-driven technology cycle is expected to continue supporting electrical and electronics (E and E) exports, reflecting Malaysia's established position in the global semiconductor and electronics manufacturing ecosystem. The country's increasing involvement in advanced packaging and supplying critical components has fortified its participation in higher value-added activities, generating positive spillovers to supporting machinery and equipment segments.
Abdul Rasheed highlighted that a 'low and stable inflation environment also helps anchor macroeconomic stability.' However, he cautioned that inflation might rise to 2.5 percent this year due to external cost pressures. For 1Q 2026, Malaysia's headline inflation increased to 1.6 percent from 1.3 percent in 4Q 2025, while core inflation moderated to 2.1 percent from 2.3 percent previously.
On the impact on businesses, he noted that firms' resilience remains evident in the near term, given mitigation measures such as inventories and alternate sourcing strategies. He mentioned that firms are holding inventories that can sustain production and buffer against higher raw material costs. Additionally, some firms have sourced inputs from alternative suppliers like China and the United States, albeit at higher premiums and subject to export controls.
Firms are also exploring new export markets beyond West Asia and shifting towards less fuel-reliant machinery. Despite these strategies, concerns remain over potential downside risks in the second half of 2026 should the conflict prolong, with higher costs, lower revenue, deferred investments, and reduced hiring intentions.
On the banking side, Abdul Rasheed assured that banks are well-positioned to support financial intermediation, with sound asset quality and prudent provisioning to absorb potential losses despite low impairment levels.