KUALA LUMPUR (Aug 14): Malaysia could outperform the official growth forecast this year as robust exports offset potential slowdown in domestic demand, economists said.

Export-oriented industries, particularly electrical and electronics, are benefitting from the global technology upcycle, RHB Research said in a note following the latest data release. The research house expects the economy to expand 5.4% this year, beyond the government’s 4%-5% growth.

“While our outlook for Malaysia’s manufacturing sector remains broadly positive, we remain mindful of upstream cost pressures,” the house said.

Data out on Friday showed gross domestic product expanding 6% year-on-year in the second quarter as household spending and strong exports bucked Iran war concerns. On a seasonally-adjusted basis, the economy gained 2.5% quarter-on-quarter.

Malaysia is expanding at one of the fastest paces among Southeast Asian economies, thanks partly to a boom in artificial intelligence (AI) that kept its export-oriented factories humming. Spending by consumers, shielded by subsidies, has also remained resilient in the face of rising global fuel prices.

“Amid the AI tech upswing, whoever gets the electronics supply chain controls the trade and sees strong growth,” said Yun Liu, senior Asean economist at HSBC. “Outside of growth, Malaysia’s inflation is also one of the lowest in Asean, thanks to the generous subsidies.”

With strong growth and benign inflation, Bank Negara Malaysia (BNM) can afford to wait and see, and keep policy rate unchanged for the rest of 2026 and in 2027 as well, she said.

However, there are signs of moderation in domestic demand, Malaysia’s main engine of growth, as the expansion in business investment decelerated sharply while household expenditure was still growing below last year’s average.

While the external sector should remain supportive, the acceleration in the second quarter was narrow, driven by net exports and a mining output rebound, rather than domestic demand that eased, according to CIMB Investment Bank.

“We expect growth to moderate” in the second half, while the ongoing Middle East conflict weighs on domestic sentiment and activity, the house said and maintained its call for 4.8% growth for 2026.

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