PETALING JAYA: After smashing forecasts in 2025, analysts are expecting the Malaysian economy to deliver another round of firm growth this year.
If current momentum holds, Kenanga Research said there is “upside potential” towards a 5% gross domestic product (GDP) growth in 2026.
For now, however, the research house is maintaining its forecast at 4.5%, pointing out that growth prospects should remain supported by steady domestic conditions, resilient services activity and ongoing investment realisation.
External headwinds persist, but Malaysia’s diversified export base and policy push for industrial upgrading should cushion downside risks, it added.
“The export outlook is likely to stay mixed.
“Semiconductor-related shipments should remain firm on steady global demand and continued exemption from higher US tariffs.
“Broader trade flows may remain volatile due to currency moves, geopolitics and commodity price fluctuations.
“Still, expected global monetary easing in 2026 and earlier rate cuts should filter into the real economy and support demand,” said Kenanga Research in a note.
Last year, the Malaysian economy grew by 5.2%, the strongest since 2022.
The growth last year was also higher than the official 4% to 4.8% forecast.
Following the strong momentum, Hong Leong Investment Bank (HLIB) Research has upgraded its GDP growth forecast for 2026 to 4.7%.
This is notably higher than the Finance Ministry’s guidance of 4% to 4.5% for 2026.
“We anticipate domestic demand to remain the primary growth engine, anchored by a healthy job market, supportive policy measures and continued investment activity.
“Upside risks include an easing in global policy uncertainty and stronger-than-expected demand for electrical and electronic goods.”
Nonetheless, downside risks remain, stemming from rising protectionist trends and weaker external demand, according to HLIB Research.
In the fourth quarter of financial year 2025, Malaysia’s real GDP strengthened by 6.3% year-on-year, up from third-quarter’s 5.4% growth.
This exceeded the consensus median forecast of 5.7%.
Lifted by the Asean summit, introduction of lower RON95 prices and the expiration of the RM100 Sumbangan Asas Rahmah benefit by end-2025, monthly GDP recorded three consecutive months of expansion.
The supply-side growth was led by the stronger services, manufacturing and agriculture sectors, alongside sustained construction activity.
On the demand side, growth was driven by stronger domestic demand and export growth.
Going forward into 2026, UOB Global Economics & Markets Research foresees persistent external uncertainties and base effects weighing on the country.
It said domestic demand should remain the key anchor, supported by continued government policy measures, the rollout of catalytic initiatives under national master plans, the realisation of high approved investments, stronger tourism flows in conjunction with Visit Malaysia Year 2026, and ongoing momentum from the artificial intelligence boom.
In Budget 2026, the government has allocated RM419.2bil, or 19.7% of GDP, to underpin domestic growth momentum, which includes RM18bil for Phase 2 of the civil servants’ pay hike in January 2026 and RM81bil in development expenditure.
Additionally, on Jan 5, 2026, Prime Minister Datuk Seri Anwar Ibrahim announced a series of measures spanning economic, education, and institutional reforms to reinforce Malaysia’s GDP growth momentum for this year.
These include a lower service tax rate on rental for small and medium enterprises (SMEs), a one-year penalty-free transition period for e-invoicing implementation for SMEs and the full settlement of excess tax refunds for the 2023 and 2024 years of assessment.
In view of such developments, UOB Global Economics & Markets Research expects a real GDP growth of 4.5% in 2026.
“Given the challenging global backdrop and Bank Negara Malaysia’s (BNM) January monetary policy guidance signalling a hold bias, neither shifting toward easing nor tightening, we expect the overnight policy rate (OPR) to remain at 2.75% through 2026,” it said.
HLIB Research also maintained its expectation for BNM to hold the OPR steady at 2.75% this year, pointing out that the economy is positioned in a “Goldilocks state” – steady growth and subdued inflation.
