PETALING JAYA: Malaysia’s economic growth is expected to remain resilient in 2027, with the government’s fiscal consolidation target still achievable despite revenue losses from tax cuts and exemptions announced under Budget 2027, according to Hong Leong Investment Bank Research (HLIB Research).
The research house broadly concurred with the government’s gross domestic product (GDP) growth projection of 4.2% to 5.2% for 2027, with its 4.6% midpoint estimate marginally below HLIB Research’s forecast of 4.7%.
“On the demand front, growth drivers include resilient domestic demand and continued export expansion, supported by positive global growth prospects.
“For 2026, the Finance Ministry (MoF) has updated its GDP growth forecast upwards to 4.8% to 5.3% (point estimate: 5.2%).
“This supersedes Bank Negara Malaysia’s official forecast range of 4% to 5%. We maintain our full-year growth forecast of 5.3%, implying a moderation to 4.8% in the second half of 2026 (2H26),” said HLIB Research.
On the fiscal front, it said MoF’s deficit target of minus 3.3% of GDP was slightly above the firm’s projection of 3.4% of GDP.
Taking into account the revenue impact of Budget 2027 measures, particularly the various tax rate cuts and exemptions, it estimated net revenue reduction of around 0.1% of GDP.
Nevertheless, HLIB Research believes the targeted minus 3.3% fiscal deficit target remained achievable, assuming sustained GDP growth.
The research firm noted that the government expects headline inflation to be higher in early 2027, reflecting the lagged pass-through of earlier increases in input costs, before easing as upstream cost pressures normalise.
Inflationary pressures are expected to stem primarily from supply-related categories rather than demand-pull factors.
“MoF sees risks to inflation tilted to the upside, arising from potential geopolitical escalations, supply chain disruptions, weather related shocks and domestic policy adjustments.
“Nevertheless, downside risks remain, including a faster normalisation of global commodity prices, a stronger ringgit and softer domestic demand.
“Against this backdrop, we maintain our 2027 consumer price index forecast at 2.1%, within MoF’s projected range,” HLIB Research added.
Meanwhile, CGS International Securities (CGSI Securities) said the formulation of Budget 2027 was particularly challenging, as the government had to address near-term risks and advance longer-term structural priorities, while maintaining fiscal prudence amid elevated subsidy commitments.
Among the key takeaways were the focus on boosting household income through wage increases, tax relief and cash assistance, while placing greater emphasis on productivity through automation, AI adoption, SME support and workforce upskilling.
However, CGSI Securities said details and timelines for key reforms, including the carbon tax, foreign worker levy and retirement age changes, remain unclear.
It noted that Budget 2027 targeted a further narrowing of the fiscal deficit to 3.3% of GDP in 2027, from 3.6% in 2026.
“While no 2027 debt-to-GDP target was disclosed, recent data indicated some moderation in the debt ratio before the latest rise in bond yields. Debt servicing costs remained elevated at 16% of revenue in 2027 (2026: 15.7%),” CGSI Securities said.
An analyst said while inflationary pressures could persist in early 2027 before easing, the ongoing subsidy measures should help cushion the impact on consumers.
The key risk is whether external cost pressures intensify beyond expectations, he added.
