Juwai IQI global chief economist Shan Saeed.
PETALING JAYA: Strong domestic demand, rising investment activities and healthy trade flows will help push economic growth pass the 4% mark next year, say economists.
The government projected the economy to grow between 4% and 4.5% next year, from 4% and 4.8% this year. For the third quarter of 2025 (3Q25), growth as measured by gross domestic product (GDP) expanded by 5.2%, while year-to-date, GDP has grown by 4.7%.
Juwai IQI global chief economist Shan Saeed told StarBiz that Malaysia’s sovereign macro-fundamentals remain intact as the nation approaches 2026.
“I expect Malaysia to expand above 5% in 2025 and between 4.5% and 5.5% in 2026, underpinned by vigorous domestic demand, a powerful investment pipeline, and resilient trade flows.” He added that this has been affirmed by the strong set of 3Q25 data, with clear upside risks.
Shan noted that Malaysia’s 2026 growth engine would rest on architectonic pillars like strong domestic demand, high-quality foreign direct investment (FDI) and a deep investment pipeline, technology, semiconductors and artificial intelligence as well as external diversification.
On the domestic demand side, he said: “Stable labour markets, rising wage trajectories and targeted subsidy rationalisation would continue to support consumption.
“Furthermore, inflation remains well-anchored at 1.5% to 2.3%, while the 2.75% benchmark overnight policy rate (OPR) would preserve price stability and purchasing power.”
Shan said the nation’s FDI and strong investment pipeline could be gauged by Malaysia recording a historic RM378.5bil in approved investments in 2024, which rose by 14.9% year-on-year (y-o-y), generating 207,000 jobs.
He said in the first half of 2025, approvals surged another 18.7% to RM190.3bil, reaching RM285.2bil in the nine months of this year.
He said this represented a formidable capital expenditure pipeline for 2026 and 2027 and confirms Malaysia’s ascent as an investment-magnet economy. The country’s sovereign macro fundamentals would bolster its structural growth progress, he noted.
Shan said sovereign macro fundamentals defined a nation’s resilience, credibility and long-term economic destiny.
Bank Muamalat Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid
Bank Muamalat Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid said the domestic economy should be able to record respectable growth in the region of 4.3% provided the US economic growth momentum continues.
He expects resilient domestic demand with full employment, but noted that consumers may be cautious in their spending on lingering cost-of-living worries.
Mohd Afzanizam expects the government to maintain the fiscal deficit target at 3.5% of GDP for 2026, from a deficit target of 3.8% in 2025.
He said the main concern would continue to be external demand due to the impact of US tariffs.
The silver lining would be that at a 19% tariff rate, the country’s goods remain competitive, while products such as electrical and electronics (E&E) and pharmaceuticals would still be enjoying zero tariff along with 1,711 tariff lines.
He added that Malaysia remained in a position to weather the external downside risks, with the recent set of economic data showing that the country has done comparatively well compared to Asean peers.
OCBC Senior Asean economist Lavanya Venkateswaran
OCBC senior Asean Economist Lavanya Venkateswaran believes that the country’s economic fundamentals would remain strong into 2026 and support the ongoing investment upcycle through the implementation of national masterplans and medium-term infrastructure projects.
She said household spending would also remain firm supported by resilient wage growth and low unemployment rates. The push to boost economic growth across the various regions including Johor, Sabah and Sarawak would also add to economic resilience, she noted.
However, Lavanya expects slower exports growth to weigh on growth. She said with a US-Malaysia trade deal finalised, the need to frontload exports in 2026 reduces as the tariff exemptions for various categories of products were finalised.
“Semiconductor tariffs remain unknown but skew the balance of risks to the downside. More fundamentally, external demand conditions are expected to moderate with slower growth in the European Union, Japan and China.
“We also see the pace of investment spending slowing from recent highs reflecting some normalisation in the pace of investment growth, but also potentially staggered importation of capital goods to support the external trade and current account surpluses.
“As such, we forecast GDP growth of 3.8% y-o-y in 2026 from 4.6% in 2025. But beyond 2026, we see GDP growth returning to 4% to 4.5%, which is in line with our estimates of potential growth,” she said.
MARC Ratings Bhd chief economist Ray Choy
Meanwhile, MARC Ratings Bhd chief economist Ray Choy said tourism would be among one of the main drivers of the economy in 2026. He said Malaysia’s tourism numbers have surpassed pre-pandemic levels for most segments except from Asean, which presents an opportunity for an additional inflow of visitors as the country enters Visit Malaysia 2026.
He said ongoing institutional and structural reforms in recent years have unlocked more economic potential, stressing that these reforms must remain through several electoral cycles for the country to enjoy the ongoing improvement in shared prosperity.
“Structural reform should reduce the red tape and rent-seeking of middlemen which will help improve the ease of doing business and attract commercial activity, Choy said.
He forecasts GDP growth in 2026 for the country to be 4.3% in 2026, believing this would be easily achievable on clarity of US tariffs for trade globally.
“Global monetary easing in the United States and elsewhere will also help support demand. A major buttress to growth in Malaysia is consumption expenditure at about 60% of GDP, running at an average growth rate of 5% to 6% per annum.
“The biggest wildcard is war risk in several regions, such as an unresolved Russia-Ukraine war, unresolved Middle East conflicts which are near major shipping routes, as well as increased rhetoric and military signalling involving China’s stance on unification with Taiwan,” Choy said.
