The National AI Action Plan 2030 will guide and accelerate AI adoption across priority sectors while strengthening national capabilities in R&D and C&I
THE government, in the Economic Outlook 2026 report, projects Malaysia's domestic economy to grow between 4% and 4.8% in 2025 on continued recovery across key sectors and supportive policy measures.
This growth momentum would continue into 2026, with the economy forecast to expand between 4% and 4.5%, underpinned by robust domestic demand and a resilient external sector.
"Growth will be anchored by private consumption, boosted by the implementation of the salary adjustment under Phase 2 of the Public Service Remuneration System, continuation of targeted assistance programmes and robust tourism activities in conjunction with Visit Malaysia 2026," the report noted.
The report also projects the global economy to expand moderately by 3% in 2025 before improving slightly to 3.1% in 2026. The report said assessing the impact of global uncertainties and higher tariffs imposed by the United States have been a daunting task for developing countries, including Malaysia.
"As a small and open economy, Malaysia's vulnerability to external shocks has become increasingly evident amid shifting trade dynamics and rising protectionism, which pose challenges to the country's long-term economic planning."
In advancing economic complexity, the government would shift from resource dependence towards a value-creation economy driven by artificial intelligence (AI), research and development (R&D) and commercialisation and innovation (C&I) digitalisation, high growth high value (HGHV) industries and high-impact strategic sectors.
This would include programmes under the Bumiputra Economic Transformation Plan 2035. The report said Budget 2026 would focus on three thrusts guided by the Ekonomi Madani framework, with the first being advancing reform efforts, with emphasis on enhancing governance, strengthening service delivery and safeguarding fiscal sustainability.
The report added that nationwide GovTech initiatives, including MyVisa 2.0, MyJPJ and digital one-stop centres have streamlined service delivery, reducing bureaucratic burdens and providing more seamless transactions.
The other two thrusts under the framework, Raising the Ceiling , seeks to propel economic growth and 'Raising the Floor', seeks to uplift the standard of living.
"By leveraging technology, talent and sustainability principles, Malaysia is poised to unlock new sources of growth, which will fortify its position as a dynamic and resilient economy.
"The government will introduce the National AI Action Plan 2030, a robust governance framework to guide and accelerate AI adoption across priority sectors, while strengthening national capabilities in R&D and C&I."
Besides this, the KL20 Plan seeks to position Kuala Lumpur among the world's top 20 startup ecosystem through nurturing innovation-driven enterprises and thereby developing a leading global startup hub. Budget 2026 would also provide funding such as seed funds and co-investment funding for potential startups.
At the regional level, Malaysia has been working on deepening regional economic integration through strategic initiatives such as the Asean Power Grid to enhance cross-border energy connectivity and security. "These efforts will position Malaysia as a regional hub for renewable energy trade, reinforcing its role as a driver of sustainable growth within South-East Asia."
Among key performance indicators, the report pointed to Malaysia being on the path to becoming one of the top 30 largest economies, ranking 36th globally with a GDP of US$422bil.
Similarly, Malaysia's competitiveness increased significantly since 2024, catapulting 11 places to 23rd in the 2025 International Institute for Management Development world competitiveness ranking. To reach among the top 12 in global competitiveness by 2033, it said trade diversification; stronger R&D and C&I, as well as streamlined regulations, enhanced governance and digital readiness are being prioritised.
However, Malaysia's Corruption Perception Index (CPI) ranking has remained unchanged at 57th in 2024 with a score of 50. On fiscal sustainability, the country has made notable progress, where the fiscal deficit gradually narrowed from 5% of GDP in 2023 to 4.1% in 2024 and is anticipated to further reduce to 3.8% in 2025. This is to be further reduced to 3% in the medium-term, anchored by various fiscal reforms.
The report said monetary policy in 2025 remained focused on supporting economic growth amid global uncertainties, while maintaining domestic price stability. In July 2025, the overnight policy rate was lowered from 3% to 2.75% as a pre-emptive measure to sustain steady growth, given moderate inflation prospects. The ringgit has demonstrated resilience against the US dollar, underpinned by sound macroeconomic fundamentals, ongoing measures to encourage capital flows and improved investor confidence.
Under Budget 2025, the government allocated RM421bil, comprising RM335bil in operating expenditure and RM86bil in development expenditure.
"As the first budget under the Thirteenth Malaysia Plan, Budget 2026 will serve as a strategic policy instrument to sustain economic momentum, strengthen fiscal resilience and bridge structural gaps," the report added.
