PETALING JAYA: The economy is expected to remain resilient through 2026, underpinned by steady domestic demand and continued strength in the electrical and electronics (E&E) sector.
However, analysts warn that mounting external risks and inflationary pressures could temper growth momentum in the coming quarters.
TA Research said first-quarter (1Q) gross domestic product (GDP) growth of 5.4% year-on-year (y-o-y) was within expectations and marks a solid start to the year, despite concerns over slower growth in the coming quarters.
The research house maintained its 2026 GDP growth forecast at 4.3% to 4.7% y-o-y, but expects expansion to slow below 5% in the remaining quarters amid softer external demand and persistent global uncertainties.
“Looking ahead to 2Q26, domestic fundamentals are expected to help cushion external headwinds.
“Forward-looking indicators still point to moderate but positive growth momentum, although the pace is easing gradually.”
TA Research added that the softer trend reflected “concerns over inflationary pressures and more cautious consumer spending”, while projecting GDP growth to moderate to 4.9% y-o-y in the second quarter before easing further to around 4% to 4.1% y-o-y in the second half of 2026.
Apex Research also retained its 2026 GDP forecast at 4.7% y-o-y, saying the target remains achievable under current conditions.
“Following the stronger- than-expected 1Q26 GDP print, growth should remain relatively firm in 2Q26, supported by resilient E&E and information and communications technology service exports alongside steady domestic demand,” it said.
The brokerage added that private consumption would “continue to anchor growth amid resilient labour market conditions and contained inflation”.
Despite concerns surrounding the Middle East conflict and supply chain disruptions, Apex Research said near-term risks remained manageable.
Malaysia’s April manufacturing purchasing managers’ index indicated stronger production activity as manufacturers increased stockpiling efforts.
“According to Bank Negara Malaysia (BNM), firms are holding an average of three to four months of inventory, which should help sustain production and cushion against rising costs,” it noted, adding firms were sourcing inputs from alternative suppliers and diversifying export markets.
The brokerage highlighted policy support measures as crucial in mitigating supply disruptions.
“BNM has introduced the RM5bil SME Stabilisation Relief Facility to provide working capital support and repayment assistance, particularly for small and medium enterprises (SMEs) affected by supply disruptions.”
Hong Leong Investment Bank (HLIB) Research remained more cautious, citing risks from the ongoing blockade of the Strait of Hormuz.
“We remain cautious over the spillover effects from the ongoing blockade of the Strait of Hormuz, which could lead to production disruptions from June onwards.”
Nevertheless, the research house said resilient domestic demand, continued E&E export growth and sustained fuel subsidy support would provide buffers to the economy.
TA Research warned inflation risks could intensify in coming months, with consumer price index growth potentially exceeding 2%.
“As these spillover effects gradually filter through the economy, inflation could edge higher and eventually fall within our forecast range of 2.1% to 2.5% for 2026.”
BNM is expected to maintain an overnight policy rate at 2.75% throughout 2026.
Malaysia’s GDP expanded 5.4% y-o-y in 1Q26, easing from 6.2% in 4Q25 but slightly exceeding the advance estimate of 5.3%.
