Central bank projects growth of 4–5% in 2026 as resilient domestic demand, strong investment and a sound financial system help cushion external shocks.
BY TENGKU NOOR SHAMSIAH TENGKU ABDULLAH
KUALA LUMPUR, April 1 – Malaysia’s economy expanded 5.2% in 2025, demonstrating resilience in a global environment increasingly shaped by geopolitical tensions, shifting trade policies and renewed energy market risks, Bank Negara Malaysia (BNM) said.
The central bank warned that the global economic landscape is undergoing structural shifts in which geopolitics — from tariffs to regional conflicts — is increasingly influencing economic outcomes, supply chains and investment decisions.
Releasing its Annual Report 2025, Economic and Monetary Review 2025, and Financial Stability Review for the second half of 2025, BNM said Malaysia nevertheless enters 2026 from a position of strength, supported by resilient domestic demand, moderate inflation and a sound financial system.
The Malaysian economy is projected to grow between 4% and 5% in 2026, even as global risks intensify amid geopolitical tensions and evolving trade dynamics.
Geopolitics reshaping the global economy
Bank Negara Malaysia Governor Dato’ Sri Abdul Rasheed Ghaffour said the global economic environment is now defined by major structural shifts in which geopolitics has become a central driver of economic outcomes.
“Geopolitics is no longer a backdrop to economic outcomes, but one of the main drivers,” he said at the central bank’s press conference.
International trade rules and global supply chains are rapidly evolving as firms redesign production networks for resilience and strategic alignment rather than purely efficiency and scale.
Rising tariffs and heightened geopolitical tensions are reshaping global trade patterns, with companies increasingly making investment decisions under persistent policy uncertainty.
Geopolitical flashpoints, particularly the conflict in the Middle East, have also revived risks in global energy markets, which could spill over quickly into inflation, supply chains and financial markets.
Higher oil prices, rising shipping insurance costs and disruptions to logistics networks could raise global inflation and dampen economic growth if the conflict escalates or persists.
Technology investment driving global growth
Despite these uncertainties, strong investment in technology — particularly artificial intelligence infrastructure — continues to support global economic expansion.
Demand for semiconductors, data centres and digital infrastructure is rising rapidly, forming a key pillar of global investment activity.
The world economy is projected to grow between 2.7% and 3.2% in 2026, although risks remain tilted to the downside due to geopolitical tensions and trade uncertainty.
Malaysia navigated 2025 well
Against this challenging global backdrop, Malaysia recorded 5.2% economic growth in 2025, while inflation averaged 1.4%, the lowest level in five years.
Domestic demand remained firm, exports showed resilience and credit to the private non-financial sector expanded 5.4%, with financing to small and medium enterprises (SMEs) rising 5.9%.
The ringgit also strengthened during 2025, appreciating against the US dollar and major trading currencies, supported by improving domestic fundamentals.
“Although the year 2025 was extremely challenging, the domestic economy navigated it very well,” Rasheed said.
Domestic demand remains the key growth anchor
BNM said household consumption will remain the main anchor of economic growth, supported by positive income prospects, stable employment conditions and targeted policy support.
The unemployment rate is expected to remain near its decade-low at around 2.9%, reflecting continued strength in the labour market.
Investment activity is also expected to remain robust.
Investment approvals reached RM427 billion in 2025, while the implementation rate for manufacturing projects remains high at about 85%, reflecting sustained investor confidence.
Private-sector capacity expansion is gaining traction, particularly in information and communications technology (ICT) and the electrical and electronics (E&E) sector.
BNM said progress under national development masterplans and major public investment projects — including renewable energy and transportation initiatives — will further strengthen Malaysia’s long-term productive capacity.
Malaysia’s E&E industry benefiting from AI boom
Malaysia’s electrical and electronics industry is expected to benefit significantly from the global technology investment cycle driven by artificial intelligence.
The country plays an increasingly important role in the global semiconductor ecosystem, particularly in areas such as power chips, optical components and advanced packaging.
“If GPUs are the brains of AI, Malaysia supplies the nervous system and other vital organs,” Rasheed said, referring to the country’s role in semiconductor supply chains.
Tourism recovery supporting services sector
Tourism is emerging as another key source of growth.
In 2025, the tourism industry helped turn a 14-year deficit in Malaysia’s services account into a surplus, reflecting stronger international visitor arrivals.
This momentum is expected to continue with Visit Malaysia Year 2026, which is projected to generate spillover benefits across retail, transportation and hospitality sectors.
However, developments in the Middle East could pose downside risks to tourism flows.
Inflation expected to remain stable
BNM expects headline inflation to average between 1.5% and 2.5% in 2026, broadly in line with the long-term average.
While global cost pressures remain uncertain due to geopolitical developments, underlying inflation is expected to remain stable amid steady domestic demand and policy measures aimed at moderating cost pressures.
Financial system remains resilient
Malaysia’s financial system remains strong and capable of supporting economic activity even under severe stress scenarios, the central bank said.
Banks and insurers continue to maintain strong capital positions and ample liquidity buffers.
Stress tests conducted by BNM show the banking sector remains resilient even under scenarios more severe than the Global Financial Crisis or the 2020 pandemic shock.
Borrowers’ repayment capacity also remains sound, with the share of risky and impaired loans staying low.
“Banks have the buffers to absorb losses and continue lending even under challenging conditions,” Rasheed said.
BNM reports RM12.45 billion net profit
For the financial year ended December 31, 2025, BNM reported total assets of RM602.22 billion and net profit after tax of RM12.45 billion.
Of this amount, RM7.45 billion was transferred to the central bank’s risk reserves, while RM5 billion was declared as dividend to the Government.
Structural reforms remain key
Looking ahead, Rasheed said Malaysia’s long-term economic resilience will depend on sustained structural reforms.
These include strengthening external resilience in a more fragmented global economy, investing in technology and AI-ready infrastructure, improving labour market outcomes, expanding social protection and mobilising financing for emerging growth sectors.
“Global uncertainty will shape the road ahead. But by sustaining domestic demand, executing investments and reforms, and ensuring a resilient financial system, Malaysia is well-positioned to meet this challenge with confidence,” he said.
- TNS NEWS
Source: Bank Negara Malaysia Annual Report 2025, Economic and Monetary Review 2025, Financial Stability Review 2H 2025, and press conference remarks by Governor Dato’ Sri Abdul Rasheed Ghaffour.