PETALING JAYA: Estimates of sequential growth suggest that Malaysia’s economic momentum is slowing despite stronger-than-expected advanced gross domestic product (GDP) growth of 5.3% year-on-year (y-o-y) in the third quarter of 2026 (3Q26).
CIMB Research estimated that seasonally adjusted GDP growth moderated to 1.3% quarter-on-quarter (q-o-q) from 2.5% in 2Q26, suggesting that domestic demand is easing.
“Applying the advance y-o-y growth rates to the seasonally adjusted series suggests that services growth moderated to approximately 1.1% q-o-q from 2% in 2Q26, below the 1.7% average recorded during 2Q25–4Q25,” it said.
“Manufacturing growth similarly slowed to an estimated 1.7% q-o-q (2Q26: 3.4%), despite the acceleration in y-o-y growth,” it added.
CIMB Research said the moderation was consistent with its expectations, although the slowdown was occurring more gradually than anticipated.
“The softer sequential momentum suggests that domestic demand is moderating, broadly in line with our expectations, albeit at a more gradual pace,” the research house said.
Nevertheless, headline GDP growth exceeded CIMB Research’s forecast of 4.9% and market consensus of 5.1%, supported by stronger export-oriented manufacturing, recovering palm oil production and higher import duties.
Manufacturing expanded 7.5% year-on-year, while services grew 5.4%.
CIMB Research maintained its expectation that Bank Negara Malaysia (BNM) would keep the overnight policy rate (OPR) unchanged at 2.75% in November.
“Despite the GDP upside today, we retain our call for BNM to hold the OPR at 2.75% in November, given signs of moderating domestic activity and contained inflation,” it said.
However, the brokerage cautioned that Budget 2027’s income and wage measures could add to inflationary pressures in the second half of 2027, increasing the risk of an interest rate hike.
Separately, TA Research said the stronger-than-expected GDP performance raised upside risks to its full-year growth forecast of 5.1%.
“We retain our full-year GDP growth forecast of 5.1% for now, pending the release of the final 3Q26 GDP data on Nov 18, 2026.
“However, the stronger-than-expected advance estimate raises upside risks to our projection.”
TA Research said maintaining its 4Q26 growth assumption of 4.6% would translate into full-year expansion of approximately 5.3%, at the upper end of the Finance Ministry’s forecast range.
The research house also highlighted the increased possibility of monetary tightening.
“The stronger-than-expected growth performance, together with upside risks to inflation, raises the possibility of a 25-basis-point OPR increase to 3% from 2.75%,” TA Research added.
However, it stressed that stronger growth alone would not justify higher interest rates without sustained inflationary pressures.
“The possibility of OPR normalisation at the upcoming monetary policy committee meeting on Nov 5 has therefore increased, although the decision will depend on incoming inflation data, the persistence of price pressures and the sustainability of growth momentum,” it said.
