KUALA LUMPUR (March 6): Malaysia is among the few economies expected to benefit from rising oil prices and strong domestic demand despite heightened geopolitical risks between US/Israel and Iran, says Japan’s largest investment bank and brokerage firm Nomura.

In a research note on Friday, Nomura said Malaysia’s position as a net energy exporter provides some insulation against rising oil prices, helping to support external balances.

It also added that investment spending is expected to remain a key growth driver, supported by structural reforms under the 13th Malaysia Plan and major projects such as the Johor-Singapore Special Economic Zone (JS-SEZ) and other infrastructure developments.

“Despite rising oil prices due to the Iran conflict, we think external balances and growth will be resilient, as Malaysia is a net energy exporter,” said the investment bank.

Nomura reiterated its forecast that it expects the central bank to raise its policy rate by 25 basis points to 3% in the fourth quarter, citing the strong growth outlook.

On Thursday (March 5), Bank Negara Malaysia kept the overnight policy rate (OPR) unchanged at 2.75% and expects inflation to stay moderate this year.

With its cautiously optimistic outlook on Malaysia, Nomura revised its forecast for headline consumer price inflation in 2026 to 2.1% from 2%, to reflect the impact of higher crude oil prices. Core inflation is also expected to pick up later in the year. 

Headline inflation in January stayed steady at 1.6% year-on-year, as increases in electricity and gold jewellery prices balanced by lower fuel costs.

Nomura said it also kept its 2026 gross domestic product (GDP) forecast at 5.2% year-on-year, above the Malaysian government’s official project of 4% to 4.5%. Final growth for the quarter of 2025 was revised up to 6.3%, showing broad-based strength across the economy.

Exports strengthened in January, growing 19.6% compared with 10.4% in December, led by electronics, which remained the main contributor due to benefiting from the ongoing momentum in the technology sector.

The brokerage group said the Malaysian government is projected to maintain its 2026 fiscal deficit at around 3.5% of GDP, which is in line with budget projections. It added that there may be a boost to government revenue if higher oil prices are expected to increase subsidy spending.

“We pencil in higher subsidy and social assistance spending, owing to the lack of additional subsidy reforms, which we expect to be offset by lower-than-budgeted gross development expenditures,” said Nomura.

Analysts said risks to the growth outlook include a sharper-than-expected slowdown in global growth or a downturn in the technology cycle, while higher commodity prices could provide upside support.

In comparison with regional peers, Nomura views Indonesia to bear worsening twin deficits due to higher oil prices. It also had a cautious view of Thailand as its elections leave it in an area of uncertainty, and could face additional challenges as the country is a large net oil importer.