MALAYSIA’s economy is poised to hold steady amid a moderating global outlook, with policymakers counting on resilient domestic demand and well-capitalised financial institutions to offset external headwinds.
The Economic Outlook 2026 report forecast global growth to expand modestly at 3% in 2025 and 3.1% in 2026, dampened by persistent tariff tensions, high interest rates in advanced economies, and geopolitical risks that continue to unsettle trade flows.
“The outlook is vulnerable due to multiple downside risks. The fading impact of tariff-related trade front-loading, the possibility of renewed tariff measures, rising geopolitical tensions, and fiscal imbalances pose substantial risks to stability in 2026,” the report said.
The global slowdown would inevitably test Malaysia’s export performance, particularly in electronics, palm oil and petroleum but growth can be kept on track through a recovery in tourism, targeted fiscal spending, and steady private consumption.
Malaysia’s financial system remains robust despite volatility in global capital markets. The ringgit, while still under pressure from a strong US dollar, continues to be cushioned by solid current account surpluses and healthy foreign reserves.
The local bond and equity markets continue to operate smoothly, underpinned by strong institutional participation and a deep investor base.
Bank Negara expects to maintain a cautious monetary stance as inflation stays manageable and growth remains moderate. The overnight policy rate (OPR) would likely stay at 3% through 2025, providing stability to borrowers while ensuring policy flexibility in case of sharper global shocks.
In the United States, economic growth could ease to 1.9% in 2026 from 2.8% this year, as high interest rates bite into spending. Europe’s recovery remains fragile, with the eurozone expanding just 1% in 2025, while Japan’s modest rebound would add little momentum to global trade.
China’s growth can be expected to slow to 4.8% in 2025 and 4.2% in 2026 as its property market malaise persists.
The Asean-5 economies – including Malaysia – would continue to outperform advanced markets, expanding 4.1% in both 2025 and 2026.
Indonesia and the Philippines would be expected to lead growth, while Malaysia’s performance hinges on fiscal consolidation efforts and the execution of major infrastructure and industrial projects under the New Industrial Master Plan 2030.
Despite global uncertainty, Malaysia’s fundamentals remain sound. A combination of steady domestic demand, digital economy growth, and improved investor sentiment should help the country weather tariff-driven disruptions.
