Malaysia Could Weather Oil Shock, BMI Holds Growth And Inflation Forecast At 4.3%, 1.9%
14/05/2026 (Business Today) - East Asia’s economies are expected to weather the ongoing oil shock better than the rest of the Asia-Pacific region, supported by a resilient artificial intelligence (AI)-driven investment boom, according to the latest regional outlook by BMI.
BMI said it remains in its “Extension” scenario, assigning a 55% probability that the conflict involving Iran de-escalates by mid-to-late June, although risks of escalation remain elevated at 45%.
The research house expects intermittent disruptions in the Strait of Hormuz to persist over the coming months, keeping global oil markets under pressure and prompting an upward revision to its 2026 oil price forecast.
BMI now forecasts 2026 Dated Brent crude prices to average US$90 per barrel, sharply higher than its earlier US$78 projection for front-month Brent futures, citing supply disruptions, declining inventories and refinery strain.
Against this backdrop, the firm revised its growth and inflation forecasts across the Asia-Pacific region, with outcomes diverging significantly between economies depending on exposure to the AI investment cycle and the scale of policy support measures.
Among the region’s strongest performers are South Korea and Taiwan, where AI-related semiconductor and data centre demand continues to offset the drag from higher energy prices.
BMI raised South Korea’s 2026 growth forecast to 2.2% from 1.4%, supported by strong first-quarter performance and a supplementary fiscal package worth KRW26.2 trillion.
Taiwan’s growth forecast was revised upward even more sharply to 8.1% from 6.0%, following exceptional first-quarter GDP growth of 13.7% year-on-year driven by accelerating AI infrastructure investment and semiconductor demand.
Elsewhere in East Asia, Hong Kong’s growth forecast was maintained at 2.9%, while inflation was nudged up slightly to 1.9%.
For Singapore, BMI lowered growth expectations modestly to 3.0% from 3.3%, although the republic’s AI-driven external demand and strong first-quarter GDP growth continue to provide resilience. Inflation was revised upward to 2.5%.
BMI said fiscal and monetary support measures are cushioning the impact of elevated oil prices across several economies.
In Thailand, government stimulus measures prompted BMI to raise its growth forecast to 1.6% from 1.3%, despite inflation expectations climbing sharply to 2.9%.
For Malaysia, BMI left both growth and inflation forecasts unchanged at 4.3% and 1.9% respectively, as fuel subsidies are expected to shield consumers from higher global energy prices.
Similarly, Indonesia’s growth forecast was maintained at 4.7%, with the government continuing to absorb higher fuel costs through subsidies and administered pricing to avoid social unrest.
BMI also maintained growth forecasts for China at 4.5% and Vietnam at 7.0%, supported by policy intervention and strong economic momentum.
Meanwhile, India is expected to remain relatively resilient, with growth forecast only marginally reduced to 6.6% as earlier monetary easing and government credit support continue to underpin domestic demand.
In contrast, several economies were identified as more vulnerable due to limited fiscal flexibility and higher inflationary pressures.
BMI cut the growth forecast for the Philippines to 3.9% and raised inflation expectations to 6.0%, citing the government’s limited capacity to cushion fuel price increases.
Pakistan was flagged as one of the region’s most exposed economies, with inflation forecast raised sharply to 8.3% amid IMF constraints limiting fuel subsidies. BMI now expects the State Bank of Pakistan to implement a larger-than-previously-expected interest rate hike.
Similarly, Sri Lanka faces mounting pressure due to limited fiscal space and repeated increases in fuel and electricity prices, although resilient remittance inflows continue to provide some support.
BMI also revised down Japan’s growth forecast to 1.1%, while inflation was raised to 2.0% as prolonged shipping disruptions and higher logistics costs weigh on the economy despite government fuel subsidies.
Among developed markets, Australia saw one of the steepest downward revisions, with growth forecast cut to 1.8% due largely to aggressive monetary tightening and rising borrowing costs rather than oil prices directly.
Looking ahead, BMI said the key downside risk remains a prolonged escalation in the Iran conflict that could keep the Strait of Hormuz disrupted for longer and push oil prices above current assumptions.
However, the research house noted that continued strength in the AI capex boom, particularly in East Asia’s semiconductor and data centre sectors, could provide upside risks to regional growth forecasts through the second half of 2026.