Malaysia’s central bank upbeat as Q2 growth beats expectations

KUALA LUMPUR – Malaysia’s economy could grow around 5 per cent in 2026, at the upper end of official projections, following a better-than-expected performance in the second quarter, the central bank said on Aug 14.

Gross domestic product (GDP) rose 6 per cent in the April-to-June period, higher than the official advance estimate of 5.8 per cent, which was also the median forecast in a Reuters poll of economists. The figure was stronger than the first-quarter expansion of 5.4 per cent.

Robust export growth, steady household spending and sustained investments in the quarter offset risks arising from the Middle East conflict, data released on Aug 14 by the Statistics Department and Bank Negara Malaysia (BNM) showed.

On a quarter-on-quarter seasonally adjusted basis, GDP grew by 2.5 per cent compared with a marginal decline of 0.03 per cent in the previous quarter, the data showed.

BNM projects economic growth of 4 per cent to 5 per cent in 2026, but Governor Abdul Rasheed Ghaffour said the latest indicators suggested a figure closer to 5 per cent or possibly higher.

“This is despite the ongoing geopolitical trade disruptions,” he told a press conference.

Modest inflation

The Aug 14 data showed better second-quarter economic performance in all sectors except for agriculture, which contracted 3.7 per cent amid lower palm oil production.

The central bank expects palm oil output to normalise in 2026. Any impact on agriculture from the El Nino weather pattern, which is expected to bring hotter and drier weather, would be limited and more likely be felt in 2027, Abdul Rasheed said.

The South-east Asian country has largely been cushioned from economic shocks arising from the Middle East conflict by firm exports and a boom in tech investment to support the growth of artificial intelligence infrastructure.

Abdul Rasheed said inflation was expected to remain contained in 2026, in part due to fuel subsidies and other government assistance, though higher global commodity prices were expected to place upward pressure on costs. Headline inflation was projected to be between 1.5 per cent and 2.5 per cent in 2026.

Headline and core inflation both rose 1.9 per cent from a year earlier in the second quarter, data showed.

Abdul Rasheed declined to comment on whether stronger growth and modest inflation would prompt the central bank to raise rates, saying it would assess economic developments “to ensure continued price stability and sustainable economic growth”.

In July, the central bank kept its benchmark interest rate steady at 2.75 per cent for the sixth straight policy meeting. It last adjusted the rate in July 2025, lowering it by 25 basis points as a pre-emptive measure against US tariffs.

Bank Muamalat Malaysia revised its 2026 growth forecast to 5.2 per cent from 4.8 per cent following the Aug 14 data, citing continued economic resilience, though it expects the central bank to remain pat on rates amid softening private consumption.

“Higher costs of living would keep consumers vigilant in their spending patterns. In light of this, we foresee BNM would be keen to keep the overnight policy rate steady,” the bank’s chief economist Mohd Afzanizam Abdul Rashid said. REUTERS