Rising external headwinds pose downside risks to growth

Published on 10 Jun 2026.

Share Tweet Email

Malaysia’s economy continued to grow in 1Q 2026, expanding 5.4% (4Q 2025: 6.2%), supported by services (+5.6%) and manufacturing (+5.9%). Growth remained anchored by private consumption, which rose at a more moderate pace of 4.7% (4Q 2025: 5.6%) amid steady income and supportive labour market conditions. Growth was also lifted by a sharp rebound in net exports (13.5%; 4Q 2025: -32.9%), reflecting easing import growth.

External risks have intensified, stemming primarily from the prolonged US-Iran conflict, which has disrupted global energy trade flows and supply chains. While Malaysia may benefit as a net energy exporter, gains may be limited by its reliance on Middle Eastern fuel imports (~30% of overall mineral fuel imports). Growth may also be affected by weaker global demand and higher domestic prices amid passthrough of rising production cost pressures.

Against this backdrop, we expect Malaysia’s growth to moderate but remain resilient at 4.0%-5.0% in 2026, backed primarily by domestic demand. A stable labour market and ongoing policy measures are anticipated to sustain consumption, while exports will benefit from the global tech upcycle driving demand for electrical and electronic goods.

Rising energy prices and supply constraints are expected to increase production costs and feed into domestic inflation – projected at 1.5%-2.5% for this year (2025: 1.4%) – though mitigated by targeted policy measures and subsidies such as BUDI95.

Nevertheless, downside risks to growth are more pronounced, largely contingent on the severity and duration of external shocks. Under an adverse scenario – where oil prices consistently exceed USD100 per barrel for the rest of the year and global growth slows to 2.5% – Malaysia’s GDP growth could be reduced by about 0.3 percentage points (ppts) from our baseline GDP growth for Malaysia. In a more severe scenario, with oil prices above USD120 and global growth at 2.0%, growth could decline 0.5 ppts from the baseline.

Read the full Quarterly Economic Update here.

 

Analytical contacts Tan Wan Ying (603) 2708 8251 wanying@ram.com.my		Media contact Sakinah Arifin (603) 2708 8212 sakinah@ram.com.my
Woon Khai Jhek, CFA (603) 2708 8286 khaijhek@ram.com.my

 

About RAM Rating Services Berhad (RAM Ratings)

Established in 1990, RAM Ratings is a leading credit rating agency registered under the Securities Commission’s Guidelines on Credit Rating Agencies. In addition to the provision of credit ratings for corporate bonds and sukuk and their issuers, RAM Ratings also provides research and publications on Islamic finance, fixed income and macro-economic and industry analysis as well as data analytics relating to credit risk, counterparty assessments and other related domains. 

Disclaimer

ALL INFORMATION IS PROVIDED “AS IS” WITHOUT WARRANTY OF ANY KIND. Although every reasonable care has been taken to ensure the accuracy, completeness and objectivity of the information contained in this Media Release, RAM Ratings makes no representation or warranty, whether express or implied, as to its accuracy, completeness and objectivity and accept no responsibility or liability relating to any losses or damages howsoever suffered by any person arising from any reliance on the views expressed or information in this Media Release. RAM Ratings assumes no obligation to update any information or statement contained herein, save for any information required to be disclosed by law.

Published by RAM Rating Services Berhad
© Copyright 2026 by RAM Rating Services Berhad
All rights reserved. This material may not be published, reproduced, broadcast, rewritten or redistributed without prior permission.