PETALING JAYA: The domestic economy continues to sustain growth in the second quarter of 2026 (2Q26), while an acceleration in electrical and electronic (E&E) shipments overseas amid artificial intelligence (AI) demand and stockpiling driven by geopolitical tensions helps support manufacturing activity.
While the 2Q26 gross domestic product (GDP) growth of 6% was higher than the government’s and market consensus estimates of 5.8%, a sense of caution remains, with Bank Negara Malaysia (BNM) governor Datuk Seri Abdul Rasheed Ghaffour reiterating the central bank’s GDP growth projection of 4% to 5% for the whole year.
Economists’ views were also mixed, with Kenanga Research, MBSB Research and BIMB Research upgrading their GDP growth projections, while CIMB Research maintained its projections.
Most also said growth for the year had peaked and that GDP momentum would slow in the second half (2H26).
CIMB Research has maintained its GDP growth forecast for the year at 4.8%, noting that exports should remain supportive.
Drilling deeper, it said the acceleration in 2Q26 growth was narrower, driven by net exports and a rebound in mining due to base effects.
The research house said while there was an upside surprise in services growth, led by the finance and insurance subsector, domestic demand actually eased to 5.1% from 5.2% in 1Q26.
“We expect growth to moderate in 2H26 on high base effects from 2H25, while the ongoing Middle East conflict weighs on domestic sentiment and activity,” it said.
CIMB Research expects the benchmark overnight policy rate (OPR) to be maintained at 2.75% through 1H27, with a hike requiring either evidence of a sustained pickup in inflation or a broader-based strengthening in growth beyond export manufacturing into the wider domestic economy.
Meanwhile, MBSB Research has upgraded its GDP growth forecast to 5.1% from 4.5%, taking into account growth in 1H26.
It expects domestic demand to continue anchoring growth, underpinned by increased tourism activity and higher incomes, with inflation remaining generally under control.
“While the macroeconomic outlook remains encouraging, we expect growth momentum will be relatively slower in 2H26 due to fading base effects, amid challenges from supply disruptions and higher cost pressures.”
MBSB Research added that the economy remains susceptible to several downside risks, such as an escalation in geopolitical tensions, prolonged trade and supply disruptions, higher inflation, tighter trade rules and potentially weaker final demand.
Kenanga Research also expects the OPR to be maintained at current levels as growth has picked up without broad-based demand-side inflation, amid a still supportive interest-rate regime.
“Risk remains largely supply-driven, and targeted government support measures should help cushion the impact on households,” it said.
“We see limited justification for policy tightening this year.
“Holding the OPR at 2.75% lets BNM support the ongoing economic expansion while keeping the flexibility to respond to shifts in domestic inflation and global economic conditions,” Kenanga Research said.
The research house has upgraded its GDP growth forecast to 5.3% from the previous range of 4% to 5%, pointing out that the target allows for some moderation from the strong 2Q26 momentum as frontloading effects fade.
“A pickup in private consumption, continued services expansion and ongoing public and private investment are expected to support growth. Private consumption should benefit from stable employment, sustained wage growth and targeted government assistance,” it said.
Kenanga Research believes the country’s diversified export structure will provide some cushion against weaker global demand, with the E&E subsectors continuing to benefit from structural demand tied to digitalisation, AI and the broader global technology cycle.
BIMB Research noted that the country’s 6% GDP growth places it among the stronger performing economies in the region.
“Relative to its Asean peers, Malaysia remains one of the key beneficiaries of the global technology cycle, given its significant integration into semiconductor and electronics supply chains,” it said.
The research house has also upgraded its GDP growth forecast to 5.5% from 4.9%, with the key driver continuing to be the AI-led technology upcycle, which is boosting E&E manufacturing and exports.
“Tourism will continue to support growth, although gains may be more moderate than last year due to higher jet fuel prices. Meanwhile, construction activity is likely to soften as fiscal recalibration weighs on infrastructure spending, but strong private sector investments in data centres, industrial parks, factories and warehouses should provide a cushion.
“Overall, the combination of resilient domestic demand, strong export momentum and sustained private investment supports a more optimistic growth outlook for 2026,” BIMB Research said.
