KUALA LUMPUR (Feb 13): Economists have upgraded their forecast for Malaysia's 2026 economic growth, following a surprise expansion in the final quarter of 2025, driven primarily by robust domestic spending.
Resilient domestic economic activity and spending will provide a critical buffer against external headwinds that may pop up over the course of the year, economists said.
The economy grew by 6.3% in 4Q2025 from the same quarter a year ago, significantly outpacing the advance estimate of 5.7%, bringing full-year gross domestic product (GDP) growth to 5.2%.
The quarter's performance was fuelled by a 9% rise in domestic demand, a 6.3% increase in services activities and a 9.3% growth in gross fixed capital investment.
These, coupled with resilient electrical and electronics (E&E) exports, is expected to fuel growth in 2026, MBSB Research said in a note on Friday.
“This internal resilience will serve as a critical buffer against external headwinds, including the moderation of global trade and elevated geopolitical risks,” the research house said in upgrading its gross domestic product (GDP) growth forecast to 4.6%, from 4.3% previously.
Strong tourism, in line with Visit Malaysia 2026, is also set to play a growing role, expected to boost the services and retail industries.
UOB, whose forecast was already pegged at the top-end of the government’s official range of 4%-4.5%, kept its forecast unchanged at 4.5%, flagging ongoing external uncertainties.
Key external uncertainties include the legal status of US reciprocal tariffs, the appointment of the next US Federal Reserve chair, US mid-term elections and broader geopolitical tensions, it noted.
“Although the US Supreme Court has postponed its ruling, the one-year pause in US-China tariff escalation until November 2026 provides temporary stability and support ongoing supply chain diversification. This is expected to continuously offer uneven but positive spillovers to Malaysia’s trade outlook,” it said.
Domestic monetary policy, UOB said, is expected to remain unchanged as Bank Negara Malaysia balances the resilient economy and the challenging global backdrop.