Malaysia’s economy exceeded expectations in 2Q2026, with the advance estimate showing gross domestic product (GDP) growth accelerating to 5.8% (1Q2026: 5.4%), supported by resilient domestic demand, stronger manufacturing activity and a sharp rebound in mining output. Reflecting the stronger-than-expected first-half performance, MARC Ratings has revised its 2026 GDP growth forecast upwards to 5.1% (previously: 4.4%), while maintaining its inflation forecast at 2.1%.
Exports remained strong, expanding by 45.4% in June (May: 45.3%), supported by the global semiconductor and artificial intelligence investment cycle and stronger demand for Malaysia’s energy exports amid ongoing Middle East supply disruptions. While the latest US tariffs introduce an additional source of external uncertainty, Malaysia’s relatively lower tariff rate and resilient demand for its key exports are expected to remain supportive of growth.
As of month-to-date (MTD) 22 July, the ringgit remained broadly stable at 4.09 USDMYR (end-June: 4.08 USDMYR), supported by strong domestic fundamentals and improving growth prospects. However, elevated US Treasury (UST) yields, ongoing US–Iran tensions and expectations of Federal Reserve (Fed) tightening with a likelihood of at least one rate hike by September as of 22 July, are likely to continue weighing on emerging market currencies in the near term. While the Federal Open Market Committee (FOMC) left the federal funds rate unchanged at an upper bound of 3.75% in July, the 9-3 vote to hold the federal fund rate (June FOMC vote: 12-0), with three governors favouring a hike, points to a more hawkish policy stance. Nevertheless, Malaysia’s strong sovereign rating and sustained current account surplus should continue to underpin investor confidence, support foreign demand for Malaysian Government Securities (MGS) and provide a buffer against external volatility. MARC Ratings expects the ringgit to trade within 4.00–4.15 USDMYR, revised from 3.98–4.07 USDMYR previously.
Foreign portfolio flows turned positive in June, recording net inflows of RM2.4 billion, driven by net bond inflows of RM4.9 billion (May: -RM4.7 billion), which more than offset net equity outflows of RM2.5 billion (May: -RM3.7 billion). The rebound in bond inflows reflected improved risk sentiment following the signing of the US–Iran Memorandum of Understanding in mid-June, alongside Malaysia’s resilient macroeconomic fundamentals. Meanwhile, MGS yields rose by 2–5 bps across the curve as of MTD 22 July, tracking higher UST yields and stronger domestic economic conditions, as investors scaled back expectations of near-term monetary easing by Bank Negara Malaysia amid firmer growth prospects in 2026. Looking ahead, ongoing Middle East tensions could keep energy prices and inflation elevated, leading to higher global and domestic bond yields. Nonetheless, MARC Ratings maintains its forecast for the 10-year MGS yield at 3.60%–3.70% for 2026.