This article first appeared in The Edge Malaysia Weekly on August 17, 2026 - August 23, 2026

SEEN as a beneficiary of investment in artificial intelligence (AI) infrastructure and electrical and electronics (E&E) manufacturing, Malaysia’s economy has a strong chance of growing at least 5% for a third consecutive year in 2026, after second-quarter (2Q) growth accelerated to an enviable 6%, beating the 5.8% advance estimate and consensus forecast.

Bank Negara Malaysia governor Datuk Seri Abdul Rasheed Ghaffour repeated several times that the country’s economy is set to grow “around 5%” this year, but he appeared content to leave any upward revision to the official 2026 growth forecast of 4% to 5% until Prime Minister Datuk Seri Anwar Ibrahim tables Budget 2027 on Oct 9.

“Of course, ‘around 5%’ [growth] can be above or below [5%],” he said while fielding questions from reporters after the release of 2Q2026 gross domestic product (GDP) figures last Friday (Aug 14), noting that growth in the second half of the year (2H2026) will also face a higher base effect.

Mathematically, the economy only needs to grow an average 4.4% in 2H2026 to achieve 5% full-year growth, after expanding 5.7% in the first half.

RHB Research senior economist Chin Yee Sian maintained its growth forecast of 5.4% for 2026, saying that the firm’s in-house autoregression and leading economic index models point to growth momentum being sustained at 5% to 5.2% in 2H2026.

Maybank Investment Bank chief economist Suhaimi Ilias, who correctly forecast 2Q GDP growth at 6%, raised his full-year real GDP growth forecast to 5.3%, from 4.9%, citing 1H2026 growth of 5.7%. The new forecast also factors in the high base effect from 2H2025, when the economy grew 5.7%.

UOB Bank Malaysia senior economist Julia Goh raised her 2026 GDP forecast to 5%, from 4.5%, which implies growth moderating to around 4.3% in 2H2026 “as the economic expansion normalises amid a less favourable base and rising external headwinds”.

To be sure, Malaysia is not the only beneficiary of the global AI and chips boom and needs to ensure it stays attractive in the long haul.

The country’s “impressive growth” of 5.7% year on year (y-o-y) in 1H2026 made it “Asean’s third-fastest-growing economy, just after Vietnam’s 8%+ and Singapore’s 6.1%”, says Yun Liu, HSBC’s senior Asean economist.

“Similar to regional peers like Singapore and Vietnam with extensive electronics supply chains, Malaysia’s growth was driven largely by the boom in electronics manufacturing. Its strength in the electronics trade is another reflection of the same trend, with Malaysia benefiting significantly from the AI wave … Amid the AI tech upswing, whoever gets the electronics supply chain controls the trade and sees strong growth,” she says.

UOB’s Goh notes that net exports “remained a key growth driver for a second consecutive quarter, contributing 2.4 percentage points to 2Q2026 GDP growth — up from 0.6ppt in 1Q2026 — “marking the largest contribution since 2Q2021”. “This reflected a sharp acceleration in real exports to 17% y-o-y (1Q2026: +5.2%), outpacing the 13.9% growth in real imports (1Q2026: +4.6%),” she says, adding that the stronger external sector helped offset a larger inventory drawdown, which subtracted 1.3ppts from growth.

Chief statistician Siti Asiah Ahmad said the 6% 2Q2026 GDP reading, which surpassed the 5.8% advance estimate, was due to “several reasons”, mainly a stronger performance in the services sector, particularly motor vehicles as well as the finance and insurance subsector.

Abdul Rasheed said domestic demand “remains steady and resilient but not excessive”, a view echoed by Siti Asiah.

With private consumption accounting for 60% of GDP, policymakers and economists are understandably keeping a close eye on the indicators.

Domestic demand (excluding stocks) held up at 5.1% in 2Q2026 compared with 5.2% in 1Q2026, contributing 4.9ppts to overall GDP growth in 2Q2026 compared with 5ppts in 1Q2026. Of this, steady income growth and ongoing policy support helped household consumption grow 4.8% y-o-y in 2Q2026, up from 4.7% in 1Q2026.

At the same time, government spending accelerated to 7.6% in 2Q2026, from 4.1% in 1Q2026, propelled by higher spending on supplies and services as well as emoluments. Public investments rose 6.3% in 2Q2026 (5.3% in 1Q2026) while private investments moderated to 4.3% in 2Q2026 (7.8% in 1Q2026) on slower spending on structures as well as machinery and equipment.

Apart from US Federal Reserve interest rate decisions, developments in the Middle East conflict as well as US trade policies and tariff actions, Maybank’s Suhaimi is keeping a close watch on inflation, “given limited pass-through of the surge in producer prices to consumer prices thus far”, Bank Negara’s monetary policy statements on Sept 3 and Nov 5 as well as the upcoming Budget 2027.

While strong headline GDP growth traditionally favours incumbent politicians, it may not guarantee victory if voters see a disconnect between their share of the nation’s wealth and strong headline conomic growth that is winning over investors and benefiting thriving businesses.

Anwar acknowledged that the benefits of economic growth may not be felt evenly across households and businesses. “While the headline economic indicators remain encouraging, we recognise that many Malaysians continue to face pressures from the cost of living, while some workers and businesses are navigating a more difficult operating environment,” he said in a statement, following the 2Q2026 GDP release. “The Madani government will therefore continue to prioritise measures that protect household purchasing power, support affected workers and businesses, and ensure that continued economic growth translates into higher incomes, better employment opportunities and tangible improvements in the lives of the rakyat,” he added, without disclosing what Budget 2027 will entail.

Seen as a “pre-election budget”, Budget 2027 is expected to be “even sweeter” than Budget 2026, according to observers.

With headline inflation still well anchored between 1.5% and 2.5% in 2026, most economists do not expect Bank Negara to hike its overnight policy rate (OPR) just yet.

“With strong growth and a benign inflation outlook, Bank Negara Malaysia can afford to wait and see, despite increasing global macro uncertainty,” HSBC’s Yun says, maintaining the view that the central bank is likely to hold rates in 2026 and 2027.

Asked whether Bank Negara’s Monetary Policy Committee (MPC) can raise the OPR, if the need arises, even as politicians prepare to head to the polls, Abdul Rasheed said: “The MPC will do whatever needs to be done … We look at all the data points … to guide us in making that decision. Ultimately, what’s important is price stability to ensure sustainable economic growth for Malaysia. That objective is mandated in our law.”

What is certain is that Bank Negara’s independence will be closely watched by those who pore over MPC statements.

“Looking ahead, global economic conditions will remain challenging. This makes it even more important for Malaysia to continue to strengthen its economic buffers and resilience against potential headwinds,” Abdul Rasheed concluded. 

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