Is Bank Negara being too rosy?

 The cheery view held by Bank Negara Malaysia in its latest economic outlook and forecasts is better described as ‘cautious optimism backed by structural reform’.

The release of Bank Negara Malaysia’s (BNM) Economic and Monetary Review (EMR) 2025 has sparked a familiar debate.

To some, the BNM outlook, which forecasts economic growth between 4% and 5%, appears overly optimistic, perhaps even too “rosy”, given the global headwinds from the West Asia conflict.

Closer inspection of the data suggests that this optimism may not be merely wishful thinking but rooted in a fundamental shift in Malaysia’s economic structure and a sustained growth momentum carried over from last year.

We must put the BNM projections in perspective. Malaysia is navigating global uncertainty from a position of relative strength.

Economic growth in 2025 was 5.2%, exceeding expectations. Headline inflation remained remarkably stable at 1.4%. This trend has continued into the current year, at 1.6% in January and 1.4% in February.

The upward revision of the growth forecast from the earlier 4–4.5% range reflects “multiple engines” recovery.

First, the labour market is at its strongest in years, with unemployment expected to trend down to 2.9%. This is lower than the pre-pandemic level of 3.3% in 2019 and helps support household spending as a reliable growth driver.

Second, investment is moving from approval to realisation. Foreign direct investment (FDI) recorded a net inflow of RM53.5 billion in 2025.

Nearly 85% of manufacturing projects approved between 2021 and 2025 are now in various stages of implementation. This is a direct capital injection creating jobs and expanding supply-side capacity.

Perhaps the most underestimated factor in Malaysia’s resilience is the impact of structural reforms over the last three years. These have provided the fiscal management and credibility necessary to navigate external shocks.

The fiscal deficit, which stood at 6.4% in 2021, is on track to reach 3.4% by 2026. This trajectory is now institutionalised through the Fiscal Responsibility Act 2023.

We are seeing the transition from blanket subsidies to rationalised support through mechanisms like BUDI95 and BUDIDiesel, which have saved the government approximately RM8 billion annually.

These savings are being redistributed to vulnerable households through the RM15 billion STR-Sara programme.

The flexibility of this system is already being tested. In response to the fluid global environment, the government’s temporary adjustment of the BUDI95 eligibility quota to 200 litres per month demonstrates a responsive, data-driven approach to fiscal management.

External demand, particularly in the electrical and electronics (E&E) sector, remains a critical tailwind.

As global technology expansion continues, Malaysia’s deep integration into global value chains acts as a buffer.

Even as trade turbulence reshapes global markets, Malaysia’s role in the semiconductor supply chain ensures it remains a beneficiary of the ongoing technology cycle.

This resilience has not gone unnoticed. The World Bank recently raised its growth forecast for Malaysia to 4.4%, within the BNM target range.

None of this is to say we are in the clear. The outlook remains subject to the highly fluid and volatile situation in the Gulf.

While BNM has factored adverse scenarios into its models, the actual impact on Malaysia will depend on the duration and severity of the conflict.

It looks for the moment that the conflict may be subsiding with a two-week ceasefire and a flow of oil tankers through the Strait of Hormuz. This has moderated oil prices and eased long-term concerns of supply shortages.

Malaysia has built the flexibility to weather shocks and the ability to adjust policy in real-time.

This proved helpful last year in the face of the Trump tariffs and the US-China trade war the year before. For now, the engines of growth are firing but policymakers must keep a steady hand on the throttle. - FMT

The views expressed are those of the writer and do not necessarily reflect those of MMKtT.