HSBC strategists describe Malaysia as relatively resilient to elevated Oil prices thanks to its status as a net energy exporter and beneficiary of the AI (Artificial intelligence) hardware cycle. Strong Gross Domestic Product (GDP) and export performance contrast with rising fiscal costs from petrol subsidies. They keep growth forecasts intact, lift inflation projections, and expect Bank Negara Malaysia (BNM) to keep rates unchanged through 2027.

Resilient growth but fiscal strains build

"Until the Middle East conflict, the Malaysian economy was in a “Goldilocks” stage, with strong growth and stable inflation. But the conflict increases the possibility of downside risks to growth and upside risks to inflation, even if Malaysia has demonstrated more resilience than regional peers, as it is not only a net energy exporter, but also a key beneficiary of the sustained AI cycle."

"Malaysia has made a strong start to the year, with GDP up 5.4% y-o-y in 1Q26. While construction cooled from double-digit to single-digit growth, the sustained strength in manufacturing and services has more than offset the moderation."

"Exports remain strong, thanks to the ongoing AI-driven tech cycle. On a 3-month moving average basis, Malaysia’s electronics exports surged to 30% y-o-y."

"This comes with significant fiscal costs. The monthly subsidy bill for energy has risen tenfold from MYR700m to MYR7bn due to the conflict. The hefty subsidies raise questions on what comes next for the RON95 policy, as it imposes huge pressures on Malaysia’s fiscal coffers."

"Overall, we maintain our GDP growth forecasts at 4.5% for 2026 and 4.7% for 2027. Bank Negara Malaysia (BNM) is one of the few Asian central banks to raise its 2026 growth forecast range, increasing it from 4-4.5% to 4-5%."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)