KUALA LUMPUR (March 31): Malaysia’s economy is forecast to grow between 4% to 5% in 2026, driven by resilient domestic demand and ongoing investment momentum, according to Bank Negara Malaysia (BNM).

The forecast range is slightly wider and more optimistic than the Ministry of Finance’s (MOF) 4.0% to 4.5% projection outlined in Budget 2026 announced in October last year.

Malaysia’s gross domestic product (GDP) expanded by 5.2% in 2025, exceeding BNM's official forecast of 4%-4.8%. It marked the strongest growth since 2022, when the economy grew 9%.

The central bank said growth in 2026 will continue to be anchored by domestic demand, particularly private sector spending, amid steady labour market conditions and income growth.

“Continued income, supported by steady economic growth and civil servant salary adjustment, will support private consumption,” BNM said in its Economic and Monetary Review 2025 report released on Tuesday.

Investment activity is projected to remain on an expansionary path, albeit moderating from the current upcycle, supported by the realisation of previously approved projects and ongoing infrastructure initiatives.

BNM noted that capacity expansion will be driven by sectors such as electrical and electronics (E&E) and information and communications technology (ICT), alongside continued digitalisation and automation trends.

Public investment, particularly in transport and energy-related projects, is also expected to lend support to growth.

Sectorally, the services and manufacturing sectors are expected to remain the main drivers of growth in 2026, while construction activity will continue to expand on the back of ongoing infrastructure and property developments.

The services sector is projected to grow by 5.2%, supported by consumer-related activities, tourism under Visit Malaysia Year 2026, and continued expansion in ICT and financial services.

Manufacturing growth is expected to moderate to 4.3%, with the E&E segment benefitting from sustained global demand linked to technological expansion.

By contrast, the agriculture and mining sectors are projected to contract, weighed by normalising commodity output and maturing oil fields.

On the external front, Malaysia’s trade outlook is expected to remain challenging in 2026 amid uncertainties surrounding tariff and geopolitical tensions, although strong demand for semiconductors and AI-related technologies is set to benefit the E&E sector.

“Malaysia’s diversified export structure and several supportive factors are expected to cushion the impact,” BNM said.

The central bank cautioned that Malaysia's growth prospects remain subject to external headwinds, as global economic growth is expected to ease in 2026, expanding at a more moderate pace of between 2.7% and 3.2%, compared with 3.4% in 2025.

Headwinds include higher tariffs, lingering trade uncertainties and ongoing geopolitical tensions, particularly in the Middle East, which could disrupt supply chains and investment decisions.

BNM noted that global trade growth is projected to slow as the temporary boost from frontloaded shipments in 2025 fades and the effects of tariffs begin to materialise, especially in non-E&E segments.

The central bank cautioned that risks to the global outlook remain tilted to the downside, including the potential for more prolonged geopolitical conflict and further escalation in trade restrictions, which could weigh on global growth and financial markets.

Click here to read more stories on BNM Annual Report 2025.