Bank Negara Malaysia forecasts 4-5% GDP growth for 2026, driven by domestic demand and E&E exports, while navigating external risks from geopolitics.
KUALA LUMPUR: Malaysia’s economy is projected to expand between 4% and 5% in 2026.
This follows an estimated growth of 5.2% in 2025, according to Bank Negara Malaysia (BNM).
The central bank stated that domestic resilience and a diversified export structure will continue to buffer the economy against external challenges.
It highlighted household spending, expanding investment, and sustained global demand as key growth drivers.
Steady tourism activity from Visit Malaysia 2026 and the country’s position as a net energy exporter are also expected to provide support. These factors will help navigate ongoing geoeconomic shifts and structural changes.
The services sector, contributing 59.6% to GDP, is forecast to grow by 5.2% this year.
The consumer-related subsector is expected to remain resilient alongside household spending.
“Continued operationalisation of data centre activities will support ICT subsector growth,” BNM said in its Economic and Monetary Review 2025. It added that transport and storage will benefit from tourist arrivals and new infrastructure like LRT3.
The manufacturing sector, accounting for 23% of GDP, is expected to grow at a more moderate pace of 4.3%. The electrical and electronics (E&E) industry will be supported by strong AI-related demand.
Consumer-related manufacturing industries are also expected to benefit from resilient household spending. Meanwhile, the construction sector is projected to expand robustly by 9.1%.
Growth will be driven by continued activities across all subsectors, including civil engineering. This subsector will be supported by sustained government development expenditure for public infrastructure.
Investment activity is expected to continue expanding, albeit at a more moderate pace. The realisation of many projects approved in 2025 will provide a solid foundation for continued growth.
“Strong global demand for AI-related technologies and services, together with continued digitalisation and automation will support investment growth in 2026,” the central bank said. It noted risks from reshoring of foreign investments remain contained.
BNM, however, cautioned that the conflict in West Asia may weigh on exports and tourism. External downside risks could also arise from weaker global trade and tariffs.
Domestically, lower-than-expected commodity production due to adverse weather could dampen growth. On the upside, better global growth and stronger E&E demand could boost prospects.
Domestic demand will remain the main growth driver, supported by steady private sector spending. Household spending will be underpinned by firm labour market conditions and ongoing fiscal support.
The unemployment rate is expected to remain low at 2.9%. Continued income growth and civil servant salary adjustments will support private consumption, forecast to grow by 5%.
Malaysia’s trade outlook is expected to remain challenging in 2026 amid tariff and geopolitical uncertainties. The country’s diversified export structure would cushion the impact, according to BNM.
Gross exports are projected to grow by 8.6%, driven by manufactured exports. E&E exports will be supported by the global shift toward AI-related technologies and semiconductor demand.
As an open economy, Malaysia’s outlook is sensitive to geopolitical and global energy price developments. The West Asia conflict transmits through higher energy prices, weaker external demand, and volatile capital flows.
“These, in turn, could dampen household spending and business activity,” BNM stated. The impact may be partly offset by higher commodity-related export earnings, given Malaysia’s net energy exporter status.
Existing targeted fuel subsidies would also help cushion the transmission of higher global energy prices to domestic inflation. The overall impact depends on the conflict’s duration and severity.