KUALA LUMPUR (Sept 24): Malaysia’s economy could expand by an average 5.7% in 2026, exceeding official forecasts, driven by stronger manufacturing, construction and investments, said two economists.

Asia Strategic Consulting Sdn Bhd founder Professor Paolo Casadio and Williams Business Consultancy Sdn Bhd founder Professor Geoffrey Williams also projected growth to reach 5.9% in the fourth quarter of 2026.

In a joint opinion piece, they said the projection was based on their high-frequency nowcasting system, which tracks factory electricity activity and capital flows.

They said their 5.7% projection compares with the 4.7% forecast cited by the World Economic Forum (WEF), the Asian Development Bank’s (ADB) 4.9% forecast and the official 
4.0% to 5.0% growth range.

On the supply side, Williams and Casadio projected manufacturing to grow by 8.5%, construction by 9.2% and modern services covering finance, logistics and technology by 6.5%.

They attributed the manufacturing growth to advanced packaging and testing of AI chips in Penang, while construction growth was linked to data centre development in the Johor-Singapore corridor.

On the demand side, they projected investment to grow by nearly 10% and contribute more than 2.1 percentage points to gross domestic product (GDP) growth.

They said consumer spending would grow by 4.8% and contribute 2.6 percentage points, while government spending and net exports would contribute 0.4 and 0.5 percentage points respectively.

Williams and Casadio argued that traditional economic measures may not fully capture the value generated by advanced technology activities.

“When a facility in Penang packages a thousand advanced AI accelerators instead of a thousand basic smartphone processors, the physical export volume barely changes. The shipping container weighs the same. The port statistics look identical but the economic value has multiplied tenfold,” they said.

They said their system tracks electricity consumption in clean rooms and premium pricing of advanced orders, while for data centres, they pointed to power draw, cooling requirements and compute throughput as measures of activity.

On the impact of the investment growth, Williams and Casadio said AI-driven investment was creating localised inflation in industrial land, electricity and skilled labour.

“The government must ensure that the wealth generated in Penang's clean rooms translates into rising wages and broader prosperity, preventing a two-speed economy. The danger of a Supercycle is not that it fails, but that its benefits concentrate too narrowly if the workforce is not prepared,” they said.

They added that industries driving the projected growth require skills in engineering, data science and advanced manufacturing.

For investors, they identified utilities powering data centres, industrial real estate in Johor and precision engineering firms supplying AI hardware as areas of investment opportunity.

Uploaded by Evelyn Chan