Malaysia's growth outlook raised amid resilient domestic demand

Published on 28 Aug 2026.

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Malaysia's economy expanded 6.0% in 2Q 2026 (1Q 2026: 5.4%), outperforming the official advance estimate of 5.8% and underscoring the resilience of domestic demand and strong support from external demand despite a challenging global backdrop. Growth was driven by continued strength in the services (+5.9%) and manufacturing (+7.3%) sectors as well as a rebound in mining activity (+9.2%), while exports (+17.0%) accelerated on the back of robust demand for electrical and electronic (E&E) products.

Against this backdrop, we have revised upward our 2026 GDP growth forecast to 5.0%-5.5% from the previous 4.0%-5.0%, reflecting stronger-than-expected economic performance in the first half of the year. The revision also reflects resilient household spending, steady investment momentum and stronger-than-expected export growth amid the global semiconductor upcycle. Domestic demand is expected to remain the key anchor of growth. Healthy labour market conditions, the continued rollout of investment projects and supportive public-sector spending should sustain economic activity through the remainder of the year. Export performance should also remain favourable on the back of continued E&E demand, although growth is likely to normalise as high base effects from the previous year take effect and the semiconductor cycle matures.

However, the outlook for the rest of this year remains subject to external risks. Heightened geopolitical tensions have contributed to elevated energy prices and supply-chain disruptions, while weakening global growth prospects could weigh on external demand. Any further escalation in geopolitical tensions could dampen Malaysia's growth through higher production costs, softer export demand and renewed volatility in financial markets.

We expect growth to moderate to 4.0%-5.0% in 2027 as the unfavourable high base effects from 2026 emerge and some of the cyclical factors underpinning stronger expansion in 2026 gradually ease. Nevertheless, continued investment realisation, sustained AI-driven E&E demand and the resilience of Malaysia’s diversified services sector are expected to anchor economic expansion. Our baseline assumption also includes a gradual normalisation of the OPR to 3.00% in 2027, reflecting healthy growth and supportive labour market conditions. While stronger AI-related demand and faster investment implementation could lift growth above expectations, external risks plaguing the economic outlook from 2026 are expected to persist in 2027. As such, even as the global environment remains challenging, Malaysia enters 2027 with meaningful domestic buffers.

Read the full Quarterly Economic Update here.

 

Analytical contacts Dinessh Kumar Thanasegeren (603) 2708 8251 dinessh.k.thanasegeren@ram.com.my		Media contact Sakinah Arifin (603) 2708 8212 sakinah@ram.com.my
Woon Khai Jhek, CFA (603) 2708 8286 khaijhek@ram.com.my

 

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