Best growth of 2026 could already be behind Malaysia, BMI predicts

Malaysia’s economic growth likely reached its peak in the first quarter of 2026, with year-on-year GDP expansion slowing to 5.4% from 6.3% in Q4 2025, according to the Department of Statistics. BMI, a FitchSolutions company, maintains its 2026 growth forecast at 4.3%, but warns of mounting external and domestic risks that could dampen momentum. Private consumption remained the primary growth driver in Q1, though BMI cautions this trend may not be sustainable. Rising geopolitical tensions, particularly a potential US-Iran conflict, could push inflation beyond the central bank’s 1.5–2.5% target, eroding consumer purchasing power. Additionally, proposed fuel subsidy restructuring for higher-income households may further weaken spending among a key consumer segment. Investment activity is already contracting, with direct investment plummeting to RM14.7 billion in Q1 2026 from RM46.0 billion in the prior quarter. BMI expects a more cautious US Federal Reserve to delay capital commitments, exacerbating the slowdown in the second quarter. Meanwhile, non-electrical and electronics exports are projected to remain weak as growth stalls in Malaysia’s major trading partners, though AI-driven demand may sustain E&E exports. The firm has revised its 2026 global growth forecast down to 2.4%, with US growth now expected at just 2.0%, removing a critical export market for Malaysia. BMI describes risks to its forecast as balanced, noting that a Middle East escalation could drive oil prices above $90 per barrel, fueling inflation. Conversely, a prolonged AI investment boom or faster project rollouts could provide economic support. BMI highlights that while private consumption and exports face headwinds, structural reforms and targeted policy adjustments remain key to stabilizing growth.