Overview: Malaysia’s economic outlook, first half of 2026
A reading of Bank Negara Malaysia’s second-quarter bulletin for 2026. Growth strengthened through the first half of the year while inflation stayed low and the ringgit held broadly steady, which is a more comfortable combination than either figure on its own suggests.
Growth strengthened through the first half
Malaysia’s economy accelerated through the first half of 2026, outpacing its own full-year performance in 2025, while inflation stayed low and the ringgit held steady. Growth strengthened in each quarter of 2026, to a pace above the 2025 full-year average.
The second quarter was driven by exports, particularly electrical and electronics products and a rebound in liquefied natural gas, alongside household spending and continued investment. On the supply side, the services sector was supported by information and communication technology as more data centres came into operation, and manufacturing by export-oriented clusters meeting demand related to artificial intelligence.
Bank Negara Malaysia still projects full-year growth for 2026 within a range of 4 to 5 per cent, and now indicates that the outcome could be around 5 per cent given the second quarter. That is a forecast rather than a measurement, and it is worth reading as one.
| Period | GDP growth, year on year (%) |
|---|---|
| 2025, full year | 5.2 |
| 1Q 2026 | 5.4 |
| 2Q 2026 | 6.0 |
Source: Bank Negara Malaysia. The 2025 full-year figure is from the Annual Report 2025, published 31 March 2026; the quarterly figures are from the Quarterly Bulletin for 2Q 2026, published 14 August 2026. On a quarter-on-quarter seasonally adjusted basis the economy expanded by 2.5 per cent in the second quarter, against a flat first quarter.
Inflation stayed low, but ticked up
Headline inflation rose while core inflation eased, and the two movements have different causes. The rise in the headline figure reflects higher fuel and energy costs linked to the conflict in the Middle East rather than pressure from domestic demand: fuel inflation turned positive in the second quarter, having been negative in the first. Core inflation eased, mainly on softer increases in jewellery and watches and in rent.
Bank Negara Malaysia expects headline inflation to average between 1.5 and 2.5 per cent for 2026, and describes the effect of external costs as contained, attributing that in part to targeted fuel subsidies. Producer costs did rise, but stayed concentrated upstream with limited pass-through to consumer prices during the quarter.
| Period | Headline inflation (%) | Core inflation (%) |
|---|---|---|
| 2025, full year | 1.4 | Not stated |
| 1Q 2026 | 1.6 | 2.1 |
| 2Q 2026 | 1.9 | 1.9 |
Source: Bank Negara Malaysia. The 2025 full-year headline figure is from the Annual Report 2025, which records it as the lowest in five years; the quarterly figures are from the Quarterly Bulletin for 2Q 2026. A full-year core figure for 2025 is not stated in those documents, so none is given here rather than one being inferred.
Why the combination matters more than either figure
Growth of 6 per cent alongside inflation of 1.9 per cent is a more comfortable pairing than either number on its own conveys: output is expanding faster than prices, so real incomes and purchasing power are more likely to be improving than being eroded.
Two cautions belong with that reading. Aggregate inflation is an average, and the Bank’s own 2025 report carries a feature article on the gap between measured inflation and how households experience prices, so a low national figure does not describe every household. And the headline rise here is externally driven, which means it is outside domestic policy control and could move again on events that have nothing to do with Malaysian demand.