Crowds fill the public spaces along Jalan Bukit Bintang, Kuala Lumpur, on a busy Sunday evening. — YAP CHEE HONG/The Star
PETALING JAYA: Malaysia’s economy is expected to advance at a steady pace next year, with growth seen holding near the upper bound of official targets as domestic demand continues to anchor activity.
The outlook suggested that resilience at home would offset a softer external environment, even as global policy uncertainty lingered.
Hong Leong Investment Bank (HLIB) Research projected that Malaysia’s gross domestic product (GDP) growth would moderate to 4.5% year-on-year (y-o-y) in 2026, after expanding at a revised rate of 4.8% in 2025, underpinned by resilient domestic demand.
The research house had earlier projected GDP to grow 4.5% this year.
Its growth estimate for next year sits at the upper end of the government’s 2026 GDP growth target range of 4% to 4.5%.
HLIB Research pointed to household spending as the principal engine, noting: “Private consumption will be the key driver, supported by a tight labour market, wage growth, robust tourism activity, and continued fiscal support, including civil servant pay hikes and sustained cash assistance”.
Globally, HLIB Research said growth is expected to remain relatively steady in 2026, supported by improved clarity on trade policy with inflation easing further as oil prices remain subdued, allowing real incomes to recover.
However, it foresees diverging policy paths, with the US Federal Reserve expected to proceed with cautious rate cuts, the European Central Bank likely to hold rates, the Bank of Japan poised for gradual tightening, and China seen extending monetaryeasing to counter weak domestic demand and trade tensions.
Meanwhile, investment is projected to stay supportive of Malaysia’s growth despite some easing from earlier peaks.
According to HLIB Research, investment activity is projected to remain firm despite some moderation, underpinned by the rollout of multi-year infrastructure projects, national masterplans, Budget 2026 initiatives, and strong foreign and private investment interest, particularly in data centre–related activity.
Externally, the research house expected trade to lose some momentum as earlier frontloading faded but added that demand for electrical and electronics products amid the global tech upcycle and Malaysia’s diversified product structure and geopolitically neutral trade position should help cushion external risks.
On monetary conditions, HLIB Research said the central bank is likely to remain accommodative.
“Bank Negara Malaysia is expected to maintain a supportive monetary policy stance in 2026, with the overnight policy rate expected to remain steady at 2.75%, as growth and inflation remain broadly balanced,” it said.
“Economic momentum is projected to stay resilient, underpinned by firm household spending, healthy labour market conditions, income-supportive policies, and continued investment expansion driven by multi-year projects, approved investments, and national masterplans under the 13th Malaysia Plan and Budget 2026,” it added.
Inflation risks were seen as contained despite policy adjustments.
“Inflation is projected to stay manageable within the 1.3%–2% y-o-y range, supported by muted global commodity prices and contained demand-driven pressures, with policy reforms expected to have only a limited impact on overall price stability,” HLIB Research.
More specifically, it noted that the consumer price index is expected to edge slightly higher in 2026 to 1.7% y-o-y, compared to the 1.5% projected for 2025, which remains within the government’s forecast range, driven mainly by low base effect, domestic policy adjustments and selective cost pass-through.
It said price pressures are expected to arise from the expansion of sales and services tax, RON95 subsidy rationalisation for non-subsidised users, mandatory Employees Provident Fund contributions for foreign workers, stricter logistics enforcement, and a rebound in communication-related inflation.
