RAM Ratings maintains its GDP growth projection for Malaysia at 4.0%-5.0% for 2026, reflecting expectations of continued strength in the domestic economy. The 4Q 2025 GDP accelerated to 6.3% (3Q 2025: 5.4%), underpinned by stronger services (4Q 2025: 6.3%; 3Q 2025: 5.5%) and manufacturing growth (4Q 2025: 6.1%; 3Q 2025: 4.1%). On the demand side, private consumption and investment activities rose, expanding by 5.3% and 9.2% respectively, in 4Q 2025. Favourable labour market conditions supported growth, with the unemployment rate remaining low at 3.0% in 2025 (2024: 3.2%). The semiconductor upcycle also added strength to Malaysian exports. The full year GDP growth of 5.2% in 2025 (2024: 5.1%) underscores Malaysia’s resilience despite global trade uncertainties.

The current turn of events may weigh on this year’s outlook, with major ones including:

Reversion of US reciprocal tariffs. The decision by the US Supreme Court to strike down the reciprocal tariff measures enacted under the International Emergency Economic Powers Act (IEEPA) only provided temporary relief to major US trading partners. The US government almost immediately followed up with a new 10% global blanket tariff under an alternative law. A further increase to 15% for some countries is also under consideration. While both tariff scenarios are less punitive than the 19% tariff under the Agreement on Reciprocal Trade (ART), uncertainty remains elevated. New tariff measures could still be introduced by the US using alternative legal frameworks within the 150-day window. We also remain cautious on potential new tariffs targeting semiconductors that could impede Malaysia’s growth momentum.

Escalation of conflicts in the Middle East. The military strikes conducted by the US and Israel against Iran last Saturday, followed by Iran’s retaliatory attacks on US military bases across several Gulf states, injected significant geopolitical uncertainty into the region. One of the most significant risks is to the global oil market, particularly through elevated disruption risks to seaborne oil trade, given Iran’s stated intention to close the Strait of Hormuz. This narrow maritime chokepoint bordering Iran, handles close to 30% of global seaborne oil trade, equivalent to around 20% of global oil and petroleum consumption, based on data from 2020 till 1Q 2025. Iran also accounts for about 3% of global output, making it the fourth-largest producer in OPEC. Taken together, these factors are likely to keep global oil prices elevated in the near term, as long as the conflict persists. For Malaysia, the most immediate direct impact would likely stem from higher oil prices and potential disruption to oil supply, given that approximately 30% of the country’s mineral fuel imports originate from the Middle East. However, broader trade disruption is seen to be relatively limited, as the Middle East is not a major trading partner for Malaysia. Malaysia’s exports to and imports from the Middle East account for only 1.9% and 4.7% of overall exports and imports, respectively.