PETALING JAYA: Private consumption is expected to remain the key anchor of economic growth in 2026, providing a cushion against external uncertainties.
However, economists caution that the outlook hinges on income growth and the sustainability of government cash aid.
Economist Geoffrey Williams said Malaysia’s growth story has become increasingly reliant on household spending, supported in recent years by government assistance and wage measures.
“There is a great deal of reliance on private consumption and it now has a bigger share of gross domestic product (GDP) at 63.2% in the third quarter of 2025 (3Q25),” he told StarBiz.
Under Budget 2026, Prime Minister Datuk Seri Anwar Ibrahim announced that allocations for the Sumbangan Tunai Rahmah and Sumbangan Asas Rahmah (Sara) programmes will be increased to RM15bil, up from RM13bil in 2025 and RM10bil in 2024.
This is in line with the government’s commitment to eradicate hardcore poverty and help low-to-middle income groups cope with rising cost-of-living pressures.
However, Williams cautioned that reliance on cash aid raises questions over the sustainability of consumption growth.
“There is also concern about stagnant wages and incomes and an increasing reliance on household debt to sustain consumption, including buy now, pay later (BNPL) deals,” he said.
Malaysia’s household debt stood at RM1.65 trillion as of end-March 2025, equivalent to nearly 83% of GDP, with more than 61% comprising loans for residential property purchases.
Still, impairments account for just 1.1% of total household debt, according to Bank Negara Malaysia.
As of end-September 2025, Malaysian households owed RM54.9bil in credit card and BNPL debt, according to the Finance Ministry.
Credit card balances amounted to RM50.7bil, with RM551.8mil, or 1.1%, overdue, while BNPL loans stood at RM4.2bil across about seven million accounts, with RM147.7mil, or 3.5%, overdue from 185,465 users.
Williams also pointed out that headline consumption growth figures may overstate underlying spending strength.
“Consumption also rises because prices are rising. When we take this effect out, the impact of consumption is more limited,” he said. “In real terms it increased by only 0.5% in the last quarter.”
On a quarter-on-quarter seasonally adjusted basis, private final consumption expenditure expanded by 0.5% in 3Q25, compared with 2.1% growth in the preceding quarter, the Statistics Department reported a month ago.
Williams added that flat incomes could weigh on the private consumption outlook in 2026.
Despite these concerns, Maybank Investment Bank Research (Maybank IB) expects Malaysia’s growth to remain “mostly internally generated”, supported by resilient domestic demand amid volatile external conditions.
“Malaysia’s GDP growth dynamics is a case of resilient domestic demand amid volatile net external demand,” it said. “We do not see this narrative changing in 2026.”
The research house forecast GDP growth of 4.5% in 2026, slightly lower than an estimated 4.7% in 2025, underpinned by domestic demand expansion of 6%.
It projects private consumption to grow steadily at 5.1% in both 2025 and 2026, supported by income-related measures in Budget 2026, including civil service pay and pension reviews, continued cash handouts, steady private sector salary growth and “benign” inflation levels.
“Anchoring resilient domestic demand is the steady growth momentum in private consumption, underpinned by income-related measures in Budget 2026,” Maybank IB said.
MBSB Research echoed this view, projecting Malaysia’s GDP growth at about 4.3% in 2026, anchored by expected private consumption growth of around 5.3%, resilient exports and supportive policy settings.
“Private consumption is expected to rise relatively stronger at 5.3% in 2026 from the expected 5% this year, serving as a key anchor for Malaysia’s economic growth and mitigating uncertainties mostly from the external front,” it said.
The research house added that private consumption will likely remain the largest contributor to GDP on the demand side in 2026, supported by a healthy labour market, steady wage increases, low inflation and stronger tourism activity under Visit Malaysia 2026.
However, it cautioned that weaker net exports could remain a drag on growth, as the effects of US tariffs continue to filter through, even as Malaysia stands to benefit from sustained demand in the electrical and electronics sector.
Private consumption rose by 5.1% in the first nine months of 2025.
In the third quarter, private final consumption expenditure – which accounted for 63.2% of GDP – expanded by 5%, easing slightly from 5.3% in the preceding quarter.
The Statistics Department said the growth was driven by higher spending on restaurants and hotels, which rose 14.4%, and transport, which increased 9.5%, reflecting sustained demand linked to travel and tourism.
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Maybank IB said the consumer sector will remain a key focus in 2026, although consumer stocks largely re-rated in the second half of 2025.
This was on the back of strong macro numbers, supported by government initiatives such as cash aid and Sara, as well as a larger income base from minimum wage and civil servant pay hikes amid benign inflation.
“With the majority of subsidy rollbacks announced in 2025, we approach 2026 with lower economic uncertainty, and anticipate improvements to overall consumer sentiment and a faster recovery in consumer spending,” the research house said.
“We expect 2026 to be pulsed with a clearer sense of direction and a stronger push to deliver on long-promised reforms.”
Maybank IB said project rollouts are gathering momentum, with businesses revving up capital expenditure while households benefit from steadier wages and improved sentiment.
“Taken together, these shifts create a backdrop that is more constructive. Such renewed confidence sets the stage for the themes that anchor our investment thesis for 2026.”
