PETALING JAYA: Despite the uneven nature of Malaysia’s recent economic performance, the country remains on solid footing, well supported by robust headline indicators.
Malaysia’s economy expanded by a stronger-than-expected 6% in the second quarter (2Q26), bringing first-half gross domestic product (GDP) growth to 5.7%.
Speaking at the “AmBank BizDIALOGUE: Market Outlook Series – Navigating the Headwinds: What Malaysia’s Economic Reality Means for Budget 2027”, AmBank Group chief economist Firdaos Rosli noted that Budget 2027 is not merely about sustaining top-line growth, but ensuring its benefits are broad-based amid an uncertain global landscape.
As Malaysia approaches the tail-end of the current political cycle, he said the government will likely prioritise shielding the domestic economy from external shocks, while boosting private consumption in the upcoming budget.
However, Firdaos cautioned that emerging vulnerabilities are taking shape beneath the strong headline growth, controlled inflation and stable labour market conditions.
“We are seeing lower-than-expected private consumption amid softening labour market conditions. Global supply chain reconfigurations and rising production costs are major contributing factors,” he said, adding that recent outperformance remains heavily concentrated in the global technology upcycle.
Addressing concerns over whether the 3.3% fiscal deficit target remains realistic, given the oil price volatility and RON95 subsidy reforms, Firdaos pointed to strong nominal GDP expansion.
“Realistically, it depends on our nominal GDP, which I expect to hit around 7% this year. Even if the government needs to spend more on petrol subsidies, strong nominal growth gives them room to manage the deficit within 3.3% to 3.5%.”
Highlighting the divergence in 2Q26 GDP performance, Firdaos noted that private consumption grew at merely 4.8%, up slightly from 4.7% in 1Q26, compared to the overall 6% GDP expansion.
He added that consumer spending remains heavily concentrated in non- discretionary expenses or tourism-linked activities, rather than broad-based discretionary growth.
Underscoring household pain points, Firdaos said there was no broad-based consumption acceleration.
“Private consumption is being propped up by temporary tourism spend and transport subsidies.
“However, aggregate domestic demand remains resilient supported by policy measures like Budi Madani and stable household spending. While private consumption did not accelerate meaningfully, it remains sufficiently firm to keep core inflation relatively sticky.
“Simply put, it is still healthy, but not booming, supporting the case for an extended Bank Negara Malaysia pause.”
In his market outlook presentation, Firdaos also touched on shifts in capital flows, specifically how global markets are repricing for higher real returns.
He noted that investors are demanding higher yields to hold sovereign debt, contributing to US dollar strength.
However, Malaysian equity performance remains selective while the ringgit holds firm.
“Investors are now cherry-picking what they want. It is no longer just about whether a country’s growth is good.
“Investors are questioning which sectors are sustainable, tech-related, or produc- tivity-driven; they are probing deeper instead of looking strictly at headline numbers,” he said.
Addressing recent geopolitical spikes where global crude oil retested US$100 per barrel amid supply issues in Eastern Europe and West Asia, Firdaos emphasised that markets are not experiencing a classic, panic-driven “risk-off” flight to the US dollar.
Instead, capital flows remain highly selective.
He noted that Malaysia’s status as a net energy exporter provides a crucial buffer, as physical demand for local crude oil remains resilient despite elevated global interest rates.
Amid the war and geopolitics, Firdaos underscored how global oil is under pressure again, and while the immediate supply shock had eased, underlying energy market vulnerabilities remain.
He said the key concern is not merely higher oil prices.
“We have revised our financial year 2026 Brent assumption from US$84 to US$90 per barrel. It is not only about the US-Iran war, but also the intensifying Russia-Ukraine war.
“An energy shock has effectively interrupted the global disinflation trend, making the case for tighter global monetary conditions and exacerbating the ongoing repricing on sovereign bond markets.
“The real tail risk is when both global bond repricing and energy shock happen simultaneously,” he explained.
Firdaos added that essentially, higher oil prices could keep inflation elevated, force yields higher and intensify bond market stress globally, creating a much larger shock than either risk in isolation.
Meanwhile, AmBank Group managing director of business banking Christopher Yap said that businesses are operating in an environment that remains highly uncertain.
“Global trade dynamics, geopolitical tensions, shifting supply chains and changing costs continue to influence business decisions. There are also significant opportunities emerging, including our digital economy, particularly around artificial intelligence (AI), cloud computing and data centres (DCs).”
He said Malaysia recorded RM218.5bil in approved investments in the first half of 2026, with the services sector contributing RM149.6bil.
“Within this, DC and cloud-computing projects accounted for RM95.8bil, about 44% total approved investments, reflecting how strongly AI and digital infrastructure are shaping our investment landscape.
“The question is what does this growth mean for businesses on the ground, and how can we translate these investments into greater participation through local supply chains and technology adoption, and what should businesses be looking out for as we approach Budget 2027?” Yap added.
