AmBank Group chief economist Firdaos Rosli expects the country’s gross domestic product to moderate for a second straight year, easing to 4.5% year-on-year in 2026.
KUALA LUMPUR: The economy may be heading into a slower growth phase this year, but AmBank Group chief economist Firdaos Rosli says the moderation reflects a “normalisation” after last year’s front-loading boost rather than a sharp downturn, with domestic demand still providing a cushion.
Firdaos expects the country’s gross domestic product (GDP) to moderate for a second straight year, easing to 4.5% year-on-year (y-o-y) in 2026 from 4.9% y-o-y in 2025 (based on advance estimates) and 5.1% y-o-y in 2024.
“Actually, 4.5% is not a bad number. Currently, the country’s economy is growing steadily and can no longer expand at 5% all the time. This may have been possible before the Covid-19 pandemic, but now, post-pandemic, a more normal growth range is around 4.5% to 5%.
“If conditions become a little bad, growth could slip to the high 3% range. This is normal and is part of the normalisation process,” he said at a briefing titled, “2026 Macroeconomic Outlook: From Acceleration to Calibration” yesterday.
Firdaos said domestic GDP growth remained in good shape, supported by stable domestic demand and robust private consumption.
“Any downside risks to growth will come from external factors. Everything looks good on the domestic front so long as spending continues,” he said.
That said, Firdaos is projecting private consumption growth to ease slightly to 4.9% y-o-y in 2026, which he said is still quite acceptable, from an estimated 5.2% y-o-y in 2025 and 5.1% y-o-y in 2024.
This, he added, is because the supporting factors – such as the second tranche of the civil service salary revision, a one-off RM100 Sumbangan Asas Rahmah (Sara) cash handout and continued targeted cash assistance – are likely tempered by a more prudent spending environment, as indicated by slowing household credit growth.
“Even though we are looking at 4.9%, it is still quite acceptable. Moreover, there could be an upside to it as well, depending on how well the government proceeds with the Sara handout.
“Private consumption growth could come in higher than 4.9% if everyone receives the Sara handout and spends it in the first quarter of the year,” he said.
Further, the country’s investment outlook remains supportive, with Firdaos noting that Malaysia is now in the third cycle of its investment upcycle, underpinned primarily by the artificial intelligence (AI) capital expenditure (capex) supercycle.
While there may be new developments within the sector, the bulk of investment inflows are likely to be concentrated in semiconductors, electrical and electronics (E&E) and related machinery segments, he added.
“Investment activity is expected to sustain solid momentum, given a robust pipeline of infrastructure projects as well as the continued realisation of approved private-sector investments totalling nearly RM1 trillion between 2023 and the nine-month period ended 2025 (9M25),” he said.
He added this is despite the latest data suggesting that gross fixed capital formation growth in the current investment upcycle – driven by the data centre boom – may have peaked.
Vibrant tourism activity under the Visit Malaysia Year 2026 (VM2026) continues to drive the services sector, with Firdaos noting that tourist arrivals in 2025 “shot up drastically”, surpassing pre-pandemic levels amid the country’s Asean chairmanship and increased arrivals from neighbouring countries and China.
However, he added that achieving the government’s target of 47 million international tourist arrivals this year will depend on how well air connectivity is, especially from China’s second and third-tier cities.
“Tourism already contributed 15.1% of GDP in 2024, up from 12.8% during the pandemic, and is on track to reclaim, or even surpass, its pre-pandemic share of 15.9%,” Firdaos said.
Firdaos projects the services sector to record a 5% y-o-y increase in 2026, similar to the 5% y-o-y expected in 2025 but slightly lower than the estimated 5.3% y-o-y in 2024.
The manufacturing sector, meanwhile, is likely to ease to 2.8% y-o-y in 2026, from 4.4% y-o-y in 2025, amid a normalising growth trajectory following the front-loading activities seen last year.
Firdaos maintained that 2.8% is “not a bad number” and that it does not indicate that “we foresee a cliff coming”.
“This is because of the dissipating front-loading effects.
It is just that we do not know whether this dissipating effect will materialise earlier or later. But again, if the AI capex supercycle in the US continues, especially following what US President Donald Trump said yesterday, the outlook could change,” he said.
During Trump’s address in Davos, Switzerland on Wednesday, he brushed off Tuesday’s stock sell-off — the S&P 500’s worst since October — which was triggered by renewed volatility following his comments on Greenland and escalating tariff rhetoric, calling it “peanuts” compared with the market’s gains during his term so far. Trump went on to predict that the market could double over the coming year.
“Given that Malaysia is part of the supply chain in the AI capex supercycle, primarily to the US, when the US grows at that level, we will grow as well. Based on recent manufacturing statistics, our manufacturing output has increased by about 3.4%. Hence, things are looking quite good for Malaysia.
“This however, will remain true, so long as the AI capex supercycle remains intact, with the global semiconductor industry continuing to stay strong in the coming months, or maybe even throughout the year,” Firdaos said.
Geopolitical tensions and the tariff narrative remain key external headwinds that could weigh on Malaysia’s growth outlook.
Firdaos said the aftermath of the recent developments in Caracas, Venezuela remains uncertain, adding that if the situation were to impact Malaysia, it would likely be through commodity price volatility, particularly the oil and gas sector, which could affect the country’s fiscal sustainability and fiscal position and not so much on the aspect of the financial markets.
“When Liberation Day happened last April, the impact on the Malaysia Government Securities (MGS) was actually quite muted. It was not as bad as in the US, where the 30-year Treasury yields shot up to 5%. MGS yields were very sticky, so we are somewhat insulated from this standpoint.
“Any transmission effects would probably come from global oil prices and other unquantifiable factors, like investment and consumer confidence; things that cannot be measured. It is these factors that would probably impact the economy,” he said.
Uncertainty also lingers over the US Supreme Court’s ruling on Trump’s reciprocal tariffs. Meanwhile, Trump’s tariff tactics continue to ripple through global trade with his latest spat with the European Union (EU) prompting the European Parliament to move to suspend approval of a US-EU trade deal in response.
Nonetheless, much like the US-China trade skirmish, Firdaos expects Malaysia to emerge as a beneficiary of shifting trade patterns from the US-EU dispute.
On external trade, net export growth is likely to continue seeing softness, dropping by 8% y-o-y in 2026, albeit it being a slight improvement from the estimated 9.9% decline in 2025.
Be that as it may, Firdaos remarked that he “does not think it is a concern” due to the fact that the country is in the midst of an investment upcycle, whereby the country will naturally see a lot more capex coming in from abroad.
“A lot of capital imports are coming into the country. For this reason, imports will surpass exports. From the capex perspective, manufacturing value is outstripping wage growth, which means that there are more capital incentives or more capital-led growth rather than labour-led growth that is seen in other neighbouring countries.
“The second aspect is that imports are for pre-export purposes which may not necessarily be a bad thing,” he said.
Meanwhile, Firdaos said the ringgit’s recent bull run still has some steam left in 2026, driven by incoming Fed rate cuts, weakening US dollar due to US-centric issues, gradual appreciation pathway for the yuan, Malaysia’s constructive economic outlook and continued global risk-on sentiment is boosting all emerging market assets.
Firdaos said the US dollar-ringgit pair is expected to test the 4.00 level in 1H26, and dip lower than 4.00 in 2H26, before moving closer to 3.94 by the year-end.
