Central Bank Has Priced Potential Scenarios For West Asia Conflict Into 2026 Growth, Inflation Forecasts - Governor

KUALA LUMPUR, May 15 (Bernama) -- Bank Negara Malaysia (BNM) has already priced in potential scenarios from the ongoing West Asia conflict into its 2026 growth and inflation forecasts, Governor Datuk Seri Abdul Rasheed Ghaffour said today.

“We have taken up on board some of the possible changes in our scenarios. The government is assessing it in a holistic manner,” he said when asked on the central bank’s outlook for growth and inflation amid the conflict.

Hence, the central bank maintains its growth outlook of 4-5 per cent this year, he said, reiterating that Malaysia’s solid fundamentals provide buffers against the brunt of the shocks, he told reporters after announcing Malaysia’s first quarter (1Q) gross domestic product (GDP) growth of 5.4 per cent.

International projections for Malaysia’s growth also remain within BNM’s range, with the World Bank forecasting 4.4 per cent, the ASEAN+3 Macroeconomic Research Office (AMRO) 4.6 per cent, and the International Monetary Fund (IMF) 4.7 per cent.

He said Malaysia’s net energy exporter position provides a cushion against external pressures and that diversified growth drivers underpin resilience, supported by firm domestic demand and exports.

It is also noteworthy that Malaysia benefits from strong growth momentum carried over from the fourth quarter of 2025 and the first quarter of 2026, underpinned by the resilience of electrical and electronics.

Structurally, the ongoing AI-driven technology cycle is expected to continue supporting E&E exports, reflecting Malaysia’s well-established position within the global semiconductor and electronics manufacturing services ecosystem, he said.

The country’s increasing involvement in advanced packaging and the supply of critical components has further strengthened its participation in higher value-added activities.

These developments have also generated positive spillovers to supporting machinery and equipment segments, thereby broadening the sources of growth momentum.

Besides these, “low and stable inflation environment also helps anchor macroeconomic stability,” he said, however he cautioned that inflation may edge as high as 2.5 per cent this year due to external cost pressure.

For 1Q 2026 Malaysia’s headline inflation increased to 1.6 per cent from 1.3 per cent in 4Q 2025, while core inflation moderated to 2.1 per cent from 2.3 per cent previously.

On the impact for businesses, Abdul Rasheed said resilience of firms remained evident in the near term (2Q 2026), given mitigation measures such as inventories and alternate sourcing strategies.

“Firstly, while the level of inventories can differ, these firms are holding on average of three to four months of inventory. These can be deployed to sustain production and buffer against higher raw material costs. Secondly, some firms sourced inputs from alternative suppliers such as China and the United States, albeit at higher premiums and subject to export controls,” he said.

He said firms are also exploring new export markets beyond West Asia and shifting towards less fuel-reliant machinery.

Although these mitigation strategies could help to partly limit cost increases and supply disruptions, concerns remained on the downside risk in the second half of 2026 should the conflict prolong in terms of higher costs, lower revenue, deferred investments and lower hiring intention.

On the banking side, he said banks remain well-positioned to support financial intermediation.

He said banks’ asset quality remains sound with prudent provisioning to absorb potential losses despite low impairment levels.

-- BERNAMA