PETALING JAYA: There is optimism tinged with caution over Malaysia’s 2026 economic outlook, as the advanced estimates for fourth quarter of financial year 2025 (4Q25) gross domestic product (GDP) figures come out Friday.
The World Bank, in its flagship bi-annual Global Economic Prospects report, projects Malaysia’s GDP in 2026 to expand by 4.1%, the same as in 2025.
The government has estimated GDP growth of 4% to 4.5% in 2026 from an estimated 4% to 4.8% in 2025.
Bank Muamalat Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid, referencing geopolitical concerns, said 2026 and 2027 are expected to be more challenging after the good growth trajectory of 2025 despite external uncertainties.
He said geopolitics would continue to influence decision-making and exert a higher degree of economic uncertainty, but expects this to be balanced out by artificial intelligence and its supporting infrastructure pushing efficiency and productivity gains in the longer term.
Mohd Afzanizam expects the Malaysian economy’s growth trajectory over this year and next to range between 4% and 4.5%, with domestic political stability as key to the implementation of policies and barring external shocks.
United Overseas Bank (M) Bhd or UOB senior economist Julia Goh believes Malaysia enters 2026 on a strong footing but with guarded optimism.
“Externally, we see risks from geopolitics, financial volatility and diverging monetary trends,” she said.
UOB projects GDP growth of 4.5% for 2026, which Goh said would be within reach but pointed out that a sharp escalation in global trade frictions, geopolitics or financial volatility could ease the pace of growth.
“Although tariff-related risks are less pronounced than last year, their residual effects persist.
“Encouragingly, Malaysia’s trade has shown relative resilience, which should help mitigate potential downside risks in the period ahead,” she said.
“Therefore, we continue to project a positive uptick in exports for 2026.”
For the domestic economy, Goh said growth would be supported by stable consumption, targeted fiscal policy and continuing investments, with Malaysia, as with other emerging markets, favoured by foreign investors last year on positive macroeconomic data and commitments to governance as well as fiscal consolidation.
CIMB Research expects weaker GDP growth for 2026 at 4.1% and has pushed the likelihood of a benchmark interest rate cut by Bank Negara Malaysia to the year-end from 2Q26 should stronger-than-expected 4Q25 growth momentum be carried well into the first half of financial year 2026.
It noted that the central bank may prefer to wait for more signals of a weakening manufacturing sector and export growth before implementing a cut, of which the base case scenario calls for a 25-basis-point cut in the benchmark rate.
The research house projects 4Q25 GDP at 5.3% from 5.2% in 3Q25, implying a full-year 2025 growth of 4.8%.
The consensus among economists in a Bloomberg poll calls for 2025 GDP to expand by 4.7% and 4.6% for 4Q25.
CIMB Research said its growth projections for 4Q25 come on the back of unexpectedly strong crude palm oil (CPO) production and sustained manufacturing performance.
CPO production accelerated to 23.1% growth in December from 13.7% in October, while manufacturing sector GDP increased by 5.8% in 4Q25 from 4.1% in 3Q25.
“The bumper palm oil harvest posed an upside surprise to our growth forecast (likely a 0.4 percentage point boost to 4Q25 GDP) as it was uncharacteristic of the annual seasonal pattern, which typically sees production decreasing to lower levels in the last two months of the year,” it said.
CPO production would likely be lower in 1Q26 but rebound in 4Q26.
As for manufacturing sector growth, it pointed to 4Q25 factory output growth being lifted by export-orientated industries while domestic-orientated industries’ growth remained stable.
Among the export-orientated industries, growth was led by computers, electronics and optical products, followed by electrical equipment, in line with growth in electrical and electronics (E&E)-led exports.
“Nonetheless, we continue to expect some slowdown in the export-orientated industries, particularly among the non-E&E manufacturers, as the higher US tariffs and stronger ringgit dampen demand in 2026,” it said.
The World Bank’s chief economist, Indermit Gill, said in the report that the global economy “has defied expectations” and did not crack under the extraordinary strains of the 2020s.
“Yet it would be dangerous to assume that the danger has passed,” he said.
Gill added that the resilience of 2025 did not stem from economic strength but from businesses scrambling to import before higher tariffs took effect and debt-laden governments keeping the fiscal spigots open.
“But it will take more than business agility and fiscal laxity to steer the global economy back on track: there is no substitute for good economic policy,” he said.
The World Bank projects global GDP growth of 2.6% this year compared to 2.7% estimated for 2025, driven by a notable slowdown in demand for traded goods and softening domestic demand in many major economies before picking up to 2.7% in 2027.
It expects US GDP to expand an average 2.2% in 2026 after growing an estimated 2.1% in 2025, while China’s 2026 GDP has been estimated at 4.4%, from a 4.9% projection in 2025.
Euro-area GDP has been projected at 0.9% in 2026, from 1.4% in 2025, and India’s GDP at 6.5% for this year compared to 7.2% last year.
