Malaysia’s economy continued to grow in 1Q 2026, expanding 5.4% (4Q 2025: 6.2%), supported by services (+5.6%) and manufacturing (+5.9%). RAM Ratings in its report, said growth remained anchored by private consumption, which rose at a more moderate pace of 4.7% (4Q 2025: 5.6%) amid steady income and supportive labour market conditions. Growth was also lifted by a sharp rebound in net exports (13.5%; 4Q 2025: -32.9%), reflecting easing import growth.
The agency noted that external risks have intensified, stemming primarily from the prolonged US-Iran conflict, which has disrupted global energy trade flows and supply chains. While Malaysia may benefit as a net energy exporter, gains may be limited by its reliance on Middle Eastern fuel imports (~30% of overall mineral fuel imports). Growth may also be affected by weaker global demand and higher domestic prices amid the passthrough of rising production costs.
Against this backdrop, RAM expects Malaysia’s growth to moderate but remain resilient at 4.0%-5.0% in 2026, backed primarily by domestic demand. A stable labour market and ongoing policy measures are anticipated to sustain consumption, while exports will benefit from the global tech upcycle driving demand for electrical and electronic goods.
Rising energy prices and supply constraints are expected to increase production costs and feed into domestic inflation – projected at 1.5%-2.5% for this year (2025: 1.4%) – though mitigated by targeted policy measures and subsidies such as BUDI95.
Nevertheless, downside risks to growth are more pronounced, largely contingent on the severity and duration of external shocks. Under an adverse scenario – where oil prices consistently exceed USD100 per barrel for the rest of the year and global growth slows to 2.5% – Malaysia’s GDP growth could be reduced by about 0.3 percentage points (ppts) from our baseline GDP growth for Malaysia. In a more severe scenario, with oil prices above USD120 and global growth at 2.0%, growth could decline 0.5 ppts from the baseline.
