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MALAYSIA’S economy is forecast to grow at a steady pace above 4 per cent over the next two years, underpinned by resilient domestic demand, major infrastructure investments and the government’s structural reform agenda, according to Malaysian Rating Corporation Bhd (MARC Ratings).
The agency projects gross domestic product (GDP) growth at 4.2 per cent in 2025 and 4.0 per cent in 2026, signalling continued economic momentum amid a volatile global environment.
“In 2025, our in-house forecast would be 4.2 per cent GDP growth, and we are expecting a very slight alteration to about 4.0 per cent for 2026,” said MARC Ratings’ chief economist Dr Ray Choy during the MARC360 Reflections: Analyses of Malaysia’s Budget 2026 and Post-Budget Debates webinar.
Choy highlighted the strength of Malaysia’s diversified economy, noting the importance of the services, manufacturing, and electrical and electronics sectors in sustaining growth. He added that fiscal consolidation and governance reforms were reinforcing macroeconomic stability.
“Malaysia’s robust economic growth will continue to be supported by key developments and policy initiatives, including the Johor–Singapore Special Economic Zone, the Rapid Transit System Link, Penang Light Rail Transit, the Pan Borneo Highway, and the East Coast Rail Link,” he said.
Commenting on Budget 2026, Choy praised the government’s approach as forward-looking, particularly in leveraging government-linked companies (GLCs) and government-linked investment companies (GLICs) to align public and private sector efforts in national development.
“It was very innovative with regards to co-opting the GLCs and GLICs to make it clear that the importance of public–private partnerships is major in driving overall development. That will reduce some of the disconnect in goals and ensure spending is channelled into projects with positive return on investment (ROI) and good project economics,” he said.
Choy also noted that Malaysia retains flexibility to respond to economic shocks, supported by low inflation and policy headroom.
“Malaysia’s Consumer Price Index (CPI) is trending low. The subsidy retargeting did not result in conventionally expected CPI outcomes. Because of the very low CPI, that actually gives the potential for monetary easing to be possible,” he said.
With global trade patterns shifting and geopolitical risks rising, Choy stressed the need to strengthen external resilience. He said Malaysia’s ASEAN chairmanship in 2025 presents a unique opportunity to enhance regional leadership.
“Because of emerging geo-economic fault lines and geopolitical fractures globally, the whole idea of strengthening our external resilience will be very important for the next decade, as well as how we leverage our role as ASEAN Chair,” he said.
On fiscal sustainability, Choy said Malaysia’s debt levels remain manageable and are supported by a healthy growth trajectory and reforms under the Fiscal Responsibility Act and the Government Procurement Act.
“Malaysia’s growth continues to outpace its debt-servicing cost, and reforms to expand revenue and control expenditure are steering the country towards a more sustainable fiscal path,” he added.
Meanwhile, OCBC Bank senior ASEAN economist Lavanya Vekataswaran said Budget 2026 reflects a balanced approach between fiscal discipline and responsiveness to economic challenges.
“It allows the government some room to also be a bit nimble in terms of allocations as we go along because it has provided for tax revenue growth and less reliance on non-tax revenues. So, overall, it hits all the right notes, but we will have to navigate uncertainty going forward,” she said. - October 15, 2025
