Malaysia raises 2026 growth forecast despite Iran war risks

ourists pose for photographs near the political slogan ‘Malaysia Madani’ (Civilised Malaysia) outside the Prime Minister’s Office in Putrajaya on Friday.

Photo: EPA Malaysia’s central bank has raised its 2026 growth outlook, saying the economy is on track to expand between 4 and 5 per cent despite mounting risks from the Iran war.

The revised forecast from Bank Negara Malaysia marks an upgrade from the government’s earlier target of 4 to 4.5 per cent, reflecting stronger-than-expected momentum in the second half of last year and resilient domestic demand. “Malaysia enters 2026 from a position of strength to navigate the challenges,” BNM Governor Abdul Rasheed Ghaffour told a news conference on Tuesday, adding that the bank’s projections had already factored in risks stemming from the conflict in Iran.

Across Southeast Asia, governments have spent billions of dollars in recent weeks trying to contain inflation as oil prices surged following disruptions linked to the war.

A man fills up his car with fuel at a petrol station in Port Dickson, Negri Sembilan, Malaysia, on Wednesday.

Photo: EPA Crude prices have spiked to nearly US$120 a barrel after Tehran imposed severe restrictions on traffic through the Strait of Hormuz, a critical shipping route that typically carries much of Asia’s oil and gas supplies.

But Malaysia is better placed than many of its regional peers to weather the shock, according to the central bank, thanks to earlier subsidy reforms and solid economic performance last year, when growth reached 5.2 per cent.

BNM expects domestic consumption to remain steady this year, alongside firm demand for Malaysia’s electrical and electronic exports – especially semiconductors linked to artificial intelligence development – and increased tourism.

Abdul Rasheed said the government’s earlier growth target had been set before data confirmed stronger-than-expected expansion in the latter half of 2025.

A motorcyclist passes the Bank Negara Malaysia building in Kuala Lumpur.

The country enjoyed stronger-than-expected growth last year.

Photo: EPA The central bank said it was tracking crude oil prices at an annual average of US$77 per barrel, within its baseline forecast range of US$70 to US$90 for the year.

That average could rise to between US$90 and US$110 per barrel if the Iran war persists for three to six months: a scenario the central bank still considers manageable and unlikely to derail growth.

But Abdul Ghaffour said the risk of adverse

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