KUALA LUMPUR: The World Bank projects Malaysia’s economic growth will remain moderate at 4.1% in 2026, unchanged from its 2025 forecast.
Lead economist for Malaysia Dr Apurva Sanghi stated that growth momentum is slowing and 2026 will be restrained by external and domestic factors.
He noted that global and regional forecasts are not particularly optimistic, with Malaysia’s economy showing high sensitivity to changes in the United States and China.
Private consumption will be the primary growth driver, supported by wage increases, government transfers and accommodative monetary policy.
A one percentage point reduction in US growth reduces Malaysia’s estimated growth by 0.8 percentage points.
A one percentage point decline in China’s growth reduces Malaysia’s growth by approximately 0.45 percentage points.
Domestic demand and confidence among households and firms have subsided according to business sentiment indicators like the RAM Index and Purchasing Managers’ Index.
Firms have adopted a wait-and-see attitude due to tariff uncertainties and other business concerns.
Malaysia’s electrical and electronic sector could lose ground in advanced semiconductor production, particularly in AI-related chips dominated by Taiwan and South Korea.
Export growth for Malaysia is projected to be flat at 2.9% in 2026.
Import growth is expected to decline to 3.7% from 4.5% previously.
Low research and development spending and limited local innovation present significant challenges, with only 13 to 18% of patents filed by Malaysians.
Further fiscal consolidation is required to place debt on a sustainable path, with debt to GDP currently at 64%.
The Fiscal Responsibility Act mandates reaching the 60% debt ceiling within three to five years.
Stronger revenue mobilisation is needed beyond Sales and Service Tax and tax compliance measures.
Malaysia could liberalise trade beyond the US to all partners and leverage ASEAN growth linkages.
Reducing restrictions in services trade and improving the business environment are crucial firm-level reforms.
Addressing corruption in permits and levelling competition between formal and informal sectors are also necessary.
“The next phase of Malaysia’s economic story hinges on productivity, innovation, and deeper integration,“ Apurva concluded. – Bernama