Malaysia entered 2026 on a firm footing, with advance estimates placing 1Q2026 gross domestic product (GDP) growth at 5.3% (1Q2025: 4.4%; 4Q2025: 6.3%), supported by resilient domestic demand and a sustained manufacturing upcycle. Services expanded by 5.4%, underpinned by consumer spending, while manufacturing accelerated to 5.8% on continued strength in the electrical and electronics (E&E) segment. However, the full impact of the war in Iran has yet to be reflected in the data. MARC Ratings expects growth to moderate, projecting full-year 2026 GDP at 4.4%.
External trade remained resilient, with March exports expanding by 8.3% to RM148.8 billion (2M2026: 10.8%), led by E&E products. Meanwhile, imports outpaced exports, rising by 10.4% to RM124.2 billion, supported by strong expansion in intermediate and capital goods, signalling ongoing investment and capacity build-up. However, the full transmission of energy shocks, rerouted shipping lanes, and elevated freight costs stemming from the Strait of Hormuz closure are anticipated to test trade activity and feed through the broader economy more prominently in the second and third quarters.
Headline inflation remained contained at 1.7% in March. However, early signs of cost pressures are emerging, particularly in transport, reflecting higher global energy prices. Transport inflation rose by 2.1% month-on-month, significantly outpacing other categories, most of which remained broadly flat. MARC Ratings projects full-year 2026 inflation to trend upwards to 2.1% as elevated fuel and freight costs cascade into secondary price effects on consumer goods and food staples. In response, the government has stepped up targeted support measures while tightening subsidy coverage, highlighting the balancing act between cushioning cost pressures and maintaining fiscal discipline.
As of 28 April, the ringgit appreciated by 2.4% month-to-date (MTD) to 3.95 USDMYR, partially reversing March’s 4.1% depreciation to deliver the second-strongest spot return among regional currencies. Most of this movement occurred between 8 and 10 April, in the wake of the Pakistan-brokered conditional US–Iran ceasefire on 7 April. Subsequent re-escalation, including the US naval blockade of Iranian ports on 13 April and tit-for-tat vessel seizures on 22 and 23 April, has since capped further appreciation. As a result, the currency continues to trade within MARC Ratings’ 3.92 to 4.07 USDMYR range, albeit at the stronger end of the band.
Foreign appetite for Malaysian debt rebounded sharply in March, with bond inflows reaching a 10-month high of RM6.1 billion, reversing February’s RM2.5 billion outflow. On the back of this renewed demand, foreign holdings of Malaysian Government Securities (MGS) and Government Investment Issues (GII) climbed to 21.6% from 21.2% in February, marking the highest reading since June 2025.
MGS yields were bullish MTD as of 28 April, declining by 5 to 12 basis points (bps) across the benchmark curve, with the 10-year yield closing at 3.55%. The rally occurred after the 7 to 9 April de-escalation window, as conditional ceasefire announcements unwound part of the embedded war risk premium.
Globally, bond markets traded in a mixed tone MTD as of 28 April. US Treasury yields edged higher by 0 to 3 bps across the curve. Of note, the Federal Reserve held the upper bound of the federal funds rate at 3.75% in April. The German Bund curve steepened, with the 2-year yield unchanged and the 30-year yield rising by 11 bps amid lingering eurozone fiscal and inflation concerns. In Asia, Chinese government bonds bull-flattened against a backdrop of subdued domestic inflation, with the 2-year and 10-year yields declining by 1 and 4 bps, respectively.