Malaysia's central bank upbeat as Q2 growth beats expectations

[KUALA LUMPUR] Malaysia’s central bank said on Friday (Aug 14) the country could see economic growth of around 5 per cent in 2026, on the upper end of official projections, following a better-than-expected performance in the second quarter.

Gross domestic product 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 Q1 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 Friday 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 to a marginal decline of 0.03 per cent in the previous quarter, the data showed.

BNM projects economic growth of 4 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.

“Commercial demand is expected to remain resilient, and this is driven by household spending and investment activities,” he told a press conference.

Modest inflation

Friday’s data showed better economic performance in all sectors in Q2, except for agriculture, which contracted 3.7 per cent amid lower palm oil production.

The central bank expects palm oil output to improve in 2026.

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Any impact on agriculture from the El Nino weather pattern, which is expected to bring hotter and drier weather, would likely be seen 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 domestic spending and exports, as well as a boom in tech investments 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 prices.

Headline and core inflation both rose 1.9 per cent from a year earlier in Q2, 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. REUTERS