KUALA LUMPUR (Sept 23): The Asian Development Bank (ADB) raised its 2026 and 2027 economic growth forecasts for Malaysia on robust technology exports, while revising up its 2027 inflation projection as El Niño is expected to keep prices elevated.

According to the Asian Development Outlook (ADO) September 2026 report released on Wednesday, Malaysia's gross domestic product (GDP) forecast for 2026 has been revised up to 4.9% from 4.6% in the July projection, while the 2027 forecast has been raised to 4.7% from 4.5%. 

Malaysia's upgrade was part of a broader improvement for developing Southeast Asia, where "stronger-than-expected performance in the first half of 2026 has slightly improved the outlook..."

The ADO also listed Malaysia among the economies where "net exports contributed strongly to growth" — alongside the People's Republic of China, India, and the Philippines — and noted that "Malaysia and the Philippines saw stronger factory activity as firms ramped up production and worked through order backlogs," read the report.

On inflation, ADB raised Malaysia's forecast to 2.0% for both 2026 and 2027, up from 1.9% for 2027 in the July projection.

"The subregional forecast is raised from 2.9% in July to 3.3% on higher projected inflation in Cambodia and Vietnam as elevated energy costs continue to feed into domestic prices, and in Malaysia and Indonesia, as El Nino's strength and duration are expected to keep prices elevated."

ADB president Masato Kanda said: "The region has remained resilient, but the risks are growing..."

"A strengthening El Niño with drier conditions means smaller harvests and reduced hydropower, pushing food and energy prices higher, and hitting the most vulnerable the hardest..."

The ADO identified two main risks to the region's growth and inflation outlook: "The first is escalating conflict, particularly a broadening of the Middle East conflict and an intensification of Russia's war in Ukraine, which could keep global energy prices elevated and volatile, and spill over to other commodities". 

"The second is a very strong El Niño, forecast to persist through the first quarter of 2027, which could raise energy demand and lower agricultural production, pushing up fuel and food prices."

The ADB also noted that a sharp correction in AI-related equity valuations, tightening financial conditions, and renewed trade policy uncertainty pose further downside risks.

Regionally, growth in developing Asia and the Pacific is projected to moderate from 5.5% in 2025 to 5.0% in 2026 and 5.1% in 2027. 

The ADO trimmed its regional inflation forecast for 2026 to 4.2% from 4.3% in July, while raising the 2027 projection to 3.5% from 3.4%.

The September report also includes an analytical chapter on monetary policy in high-debt environments, finding that "high debt can constrain both monetary policy decisions and policy transmission". 

The ADO also carried a special topic on El Niño 2026, warning that "a very strong El Niño is expected to weigh on growth across Asia and the Pacific through 2027".