Bank Muamalat Malaysia chief economist Mohd Afzanizam Abdul Rashid.
Optimistic of the domestic economy for this year, Bank Muamalat Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid said the Malaysian economy is in a position of strength as it enters 2026.
He said Bank Negara Malaysia (BNM) has been extremely careful in administering the monetary policy in 2025, where it only cut the overnight policy rate (OPR) by 25 basis points (bps) in July last year.
Thereafter, he said the central bank has been keeping the rate steady at a time when the economy was cruising at a respectable speed, with the third quarter of financial year 2025 (3Q25) GDP coming in at 5.2%.
In that sense, he said it was a pre-emptive move which would help to provide support to growth in 2026.
“The federal government’s efforts to reduce fiscal deficits have also shown promising outcomes.
“The fiscal deficits narrowed to 3.3% of GDP in the nine months of 2025 versus 4.1% of GDP in the similar period in 2024.
“This indicates their plans to reduce the fiscal deficits are on track,” Mohd Afzanizam noted.
Hence, he added that it is critical the government should remain steadfast in their reformist agenda, be it economic or institutional reform.
He said all this will entail efficiencies in the management of economic resources where the government should strive to promote competition in the industries that will translate into higher productivity.
He said better coordination among governments, such as the federal government, state government and local authorities, is extremely critical to ensure any projects can be planned and executed effectively.
“Perceptions towards corruption would need to be improved wholeheartedly as this will create negative perceptions among the businesses, households and investors if left unattended.
“I think the government has set the right tone for economic development through various policies such as New Industrial Master Plan 2030, National Energy Transition Roadmap and 13th Malaysia Plan.
“So in 2026, it’s about execution and the progress of the outcome especially in areas relating to income and cost of living.
“Not to mention, the communication policies to the rakyat have to be consistent and robust so that they will ensure a total buy-in among the community,” Mohd Afzanizam said.
MARC Ratings Bhd chief economist Ray Choy said Malaysia enters 2026 with a policy mix that is appropriate for the present phase of the economic cycle, aimed at preserving growth stability following a year of healthy investments, robust consumption and export recovery.
He said, among others, monetary policy has remained supportive, demonstrated by BNM’s 25 bps reduction of the OPR to 2.75% in mid-2025, facilitated by the fact that inflation pressures have eased materially, with headline CPI running below 2%.
“While further easing of rates is possible under the low inflation environment, a key issue in 2026 is not the cost of capital per se, but the translation of capital into productive and lasting investments which brings jobs to the economy,” Choy said.
“As such, this will need to be supported by ongoing institutional reforms and efforts to improve commercial competitiveness in the country to exceed regional and global standards.”
However, he said fiscal consolidation does not necessarily mean an automatic contraction in economic activity since public-private partnerships are increasingly leveraged to align national growth objectives.
“The largest challenge perhaps, is with execution and the need for state-led growth across the nation, with a key goal of improving national income distribution,” he said.
Choy said the central challenge for 2026 is converting fiscal space into higher-quality growth rather than expanding aggregate demand without regard for equitable distribution.
He said government revenue mobilisation is equally important.
“Measures such as the expansion of the sales tax and service tax framework in 2025 are directionally correct, but their impact also depends on actual collection efficiency.
“Without sustained improvements in tax compliance, enforcement and base broadening, revenue gains may miss the mark,” he said.
More fundamentally, Choy said labour supply and productivity need to be considered in the context of both short-term constraints and long-term aspirations.
“Demographic pressures, participation plateaus, and skills mismatches limit growth.
Policies that raise youth labour force participation, facilitate targeted high-skill immigration, and align training and education more closely with Malaysia’s present investment upcycle would have a higher growth payoff in the medium-term than further demand-side stimulus,” he said.
