This article first appeared in The Edge Malaysia Weekly on September 7, 2026 - September 13, 2026

EXPORTS have been running ahead of expectations this year, lifted by strong semiconductor demand, the artificial intelligence (AI) investment cycle and firmer commodity shipments. But after several months of outsized growth, economists expect the pace to moderate in 2027 on the high base effect and as external risks, particularly US tariffs and trade scrutiny and geopolitics, remain elevated.

Data from Malaysia External Trade Development Corporation (Matrade) shows exports rose 29.2% year on year (y-o-y) to RM1.17 trillion in the first seven months of 2026, crossing the RM1 trillion mark a month earlier than last year. Total trade expanded 24.7% to RM2.16 trillion over the same period, while the trade surplus more than doubled to RM170.5 billion.

The acceleration became particularly pronounced from April, with exports reaching successive highs before climbing 38% y-o-y to a record RM193.6 billion in July. Strong demand for semiconductors and other high-value electrical and electronic (E&E) products was the main driver, with additional support coming from commodities and other manufactured goods.

“The outlook for the technology sector remains positive, with companies still reporting strong order books extending into 2027. But export growth next year is likely to moderate after this year’s high base,” observes Lee Heng Guie, the executive director of the Associated Chinese Chambers of Commerce and Industry of Malaysia’s Socio-Economic Research Centre (SERC).

In July, total trade also reached an all-time monthly high of RM364.74 billion.

UOB senior economist Julia Goh says exports have now been exceptionally strong for four consecutive months, supported by both E&E and non-E&E products, particularly commodities.

In fact, the strength has been most visible in E&E products, where robust demand for semiconductors and other high-value electronics has driven much of the increase. Matrade said E&E exports hit their highest monthly value in July, increasing by RM32 billion from a year earlier.

Supporting that view, the World Semiconductor Trade Statistics organisation expects the global semiconductor market to remain on a strong growth trajectory in 2027. Its Spring 2026 forecast projected worldwide chip sales to rise 27% to about US$1.9 trillion (RM7.7 trillion) next year, following an exceptional 90% increase expected in 2026, with AI infrastructure and advanced computing continuing to underpin demand.

Goh and Lee also point to the growth in intermediate imports as a positive signal. The increase suggests manufacturers are continuing to replenish production inputs to meet orders, giving some indication that the strength is not solely the result of higher prices.

In addition, Yeah Kim Leng, professor of economics at Sunway University’s Jeffrey Cheah Institute on Southeast Asia, points to Malaysia having benefited not only from the semiconductor cycle but also from global companies diversifying supply chains under the “China+1” strategy.

He says this has contributed to the expansion of manufacturing and logistics activity and helped drive stronger exports to major trading partners, including the US, China and other Asian economies.

SERC’s Lee notes that the current technology boom is not unique to Malaysia, with Singapore, South Korea and Taiwan also benefiting from demand linked to semiconductors, AI and data centres.

Meanwhile, the World Trade Organization has raised its estimate for global trade growth next year to around 2.6%.

“Malaysia’s exports should therefore continue to receive support from the E&E sector in 2027, although overall export growth could moderate to a high single-digit pace. The current technology upward cycle is also still relatively early in its cycle,” notes Lee.

“We are hearing strong order books from the tech companies, but there is also some caution surrounding AI-related financial bubble risks. Malaysia appears to be well plugged into the tech supply chains, which carry both upside and downside risks,” says UOB’s Goh.

Goh also points to strong growth in intermediate imports as a positive signal. Rising purchases of production inputs suggest manufacturers are continuing to replenish inventories to meet orders, indicating that underlying demand remains healthy.

Beyond technology, palm oil, petroleum-related products and other manufactured goods have provided additional support.

SERC’s Lee expects crude palm oil prices to remain relatively firm at around RM4,500 to RM4,600 per tonne, while petroleum products, palm oil and chemicals should also contribute.

That said, Malaysian palm oil exports were estimated to have fallen 8% month on month to 1.3 million tonnes in August on weaker-than-usual festival demand from major buyer India, while stockpiles were seen rising about 6% to their highest since January, according to a Bloomberg survey of industry participants.

”All taken into consideration, Malaysia’s export growth may ease from the current high double-digit rate to a lower double-digit,” predicts Lee.

Meanwhile, Lee says Malaysia needs to remain cautious about a range of external risks, including US tariff policy, geopolitical uncertainty and developments in the Middle East.

He notes that US trade policy has become an important risk to monitor, not simply because of tariffs but because Washington is widening its scrutiny of how its trading partners produce and export goods.

For context, the US Trade Representative launched investigations against 60 economies in March into whether those economies had failed to impose and effectively enforce bans on imports made with forced labour.

Malaysia currently faces two direct Section 301 trade actions by the US, while its semiconductor exports are also exposed to broader US measures under Section 232.

The first Section 301 action relates to forced labour, seeking to determine whether Malaysia and other trading partners had failed to impose and effectively enforce bans on imports produced with forced labour.

The second Section 301 investigation concerns structural excess capacity and production, whereby Washington is examining whether Malaysia and other economies are contributing to overproduction or acting as channels for goods originating elsewhere. Fifteen other economies, including China, Singapore, Thailand, Vietnam, South Korea, Taiwan and Japan, are also being investigated.

Lee says these are important risks for Malaysia because the US may scrutinise whether the country is being used as a conduit for excess production from third countries.

Investment, Trade and Industry Minister Datuk Seri Johari Abdul Ghani said last Tuesday that the US is expected to announce the findings of its investigation into excess capacity involving Malaysia in about four weeks. He added that the investigation is close to being finalised as Malaysia continues to engage with US authorities on the definition of excess capacity. According to Johari, Malaysia is among 17 economies placed in the lower-tier 10% tariff bracket, while the remaining 43 economies are subject to a 12.5% tariff, he said.

Separately, Malaysia’s semiconductor exports remain exposed to broader US action under Section 232. This is not a Malaysia-specific investigation, but Lee says it remains a risk because of continuing US-China technology tensions and the possibility of further measures affecting semiconductors and related technology products.

“Malaysia will need to provide strong evidence and verification to address these concerns. If the US determines otherwise, it could impose higher duties on Malaysian products,” Lee warns.

“Malaysia should also watch developments under Section 232. Semiconductors have so far not been significantly affected, but there remains uncertainty, given the continuing technology rivalry between the US and China. The US could introduce further measures affecting the semiconductor or technology sectors.

“The current additional tariff of 10% is still relatively low compared with the original proposed reciprocal tariff of 19%, and Malaysia’s tariff rate also remains lower than some regional competitors. But even so, US trade policy remains unpredictable,” adds Lee.

Apart from tariffs, Sunway’s Yeah points to higher oil prices and supply disruptions arising from renewed conflict in the Middle East, warning that these could revive inflation, push interest rates higher and eventually weaken global demand.

The economists are also looking to the tabling of Budget 2027 on Oct 9.

The government’s pre-budget statement has already identified semiconductors, AI, digital services, logistics and other higher-value industries as strategic priorities. It also emphasised strengthening local supply chains, technology transfer and helping Malaysian companies compete regionally and globally.

Lee believes one immediate measure would be to expand support under Matrade’s Market Development Grant, a government export-promotion grant to help Malaysian small and medium enterprises (SMEs) offset part of the overseas expansion cost.

“The government could provide greater support through the Market Development Grant. The current lifetime cap of RM300,000 could be raised to RM500,000, while the government could also consider increasing the amount companies can claim for individual trade promotion activities and introducing a tiered structure allowing higher claims,” suggests Lee.

“[Putrajaya] should also continue helping exporters reduce compliance costs and expand into new markets.”

He says Malaysia should continue pursuing greater market access through free trade agreements, including efforts to expand into Europe, while providing more support for e-commerce and digital trade platforms that enable Malaysian firms to reach overseas customers.

Yeah adds that the budget should go beyond trade promotion and tackle the wider competitiveness of Malaysian companies.

“To sustain export growth, Budget 2027 could prioritise SME competitiveness through tax and financing reforms, double down on semiconductors and AI, expand market access through higher grant limits, and ease cumulative business costs through smarter regulation and lower regulatory costs. Equally critical are investments in TVET (technical and vocational education and training) and AI upskilling, with the budget initiatives measured by tangible metrics such as automation adoption, productivity gains, and export market penetration,” he stresses.

Meanwhile, currency movements tend to be a concern but economists caution against treating the exchange rate as a determinant of export competitiveness.

Yeah points out that Malaysia’s exports rose 29% in the first seven months of 2026 despite the ringgit appreciating about 8% against the dollar.

“In dollar terms, the seven-month export growth would have been 38%, suggesting that a strengthening of the US dollar should the US Federal Reserve raise interest rates would not derail Malaysia’s exports. A stronger dollar will, in fact, further boost the cost competitiveness of US imports from Malaysia,” he says.

Lee echoes this view, emphasising that the more important issue is whether Malaysian companies remain competitive regardless of the currency.

“Currency stability is important, but exporters cannot always rely on a cheap currency to remain competitive. Countries such as Taiwan have shown that exporters can continue selling successfully even with a stronger currency. Ultimately, Malaysian companies need to ensure their products remain competitive,” Lee says.

“In fact, the government should therefore also ensure that businesses are not burdened with excessive regulatory and production costs, particularly when exporters are already facing additional tariffs in markets such as the US.” 

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