Malaysia's economic growth may exceed 5% in 2026 - The Star

KUALA LUMPUR, 7 AUGUST 2026 —

Malaysia's economic growth is expected to exceed 5% in 2026, driven by exports and resilient domestic spending, according to MBSB Investment Bank Bhd. The investment bank cited a stable labor market, rising incomes, and government policy measures as key factors supporting domestic consumption. Higher tourist arrivals are anticipated to further boost the consumption outlook.

The Malaysian economy has experienced steady growth in recent years, with the government implementing various measures to support domestic spending and attract foreign investment. The country's strategic location and diverse economy have helped it navigate global economic uncertainties. However, the economy is not immune to external risks, and investment banks are wary of potential downside risks emerging from the external front.

Renewed and prolonged supply disruptions, higher inflationary pressures, and tighter trade rules could weigh on external demand, particularly from the United States. Details on the potential impact of these risks on Malaysia's economy are still being assessed.

MBSB Investment Bank's forecast is supported by Kenanga Investment Bank Bhd, which also expects Malaysia's economy to expand by more than 5.0% this year. Kenanga cited the manufacturing Purchasing Managers' Index (PMI) reading, which remained above the 50-point expansion threshold, as a sign of continued growth in manufacturing activity. The manufacturing PMI remained unchanged at 50.7 in July from June, indicating a stable footing for the sector despite persistent geopolitical uncertainties and external headwinds.

Resilient new orders have strengthened the case for an upward revision to Kenanga's third-quarter GDP growth forecast.

The potential impact of Malaysia's economic growth on the local market is significant. A growth rate exceeding 5% could lead to increased investor confidence, higher employment rates, and improved consumer spending. However, the impact on specific sectors and companies will depend on various factors, including their exposure to external risks and their ability to adapt to changing market conditions.

Details on the potential impact on individual sectors and companies are not yet available.

In terms of sector-specific developments, the manufacturing sector is expected to continue playing a role in driving Malaysia's economic growth. The sector's resilience is attributed to its diversification and the government's efforts to attract foreign investment. However, weaker business confidence and a decline in employment in July suggest that manufacturers remain cautious amid persistent geopolitical risks.

The government's policy measures, including cash transfers and targeted subsidies, are expected to continue supporting domestic consumption and containing price pressures. The impact of these measures on specific companies and sectors will be closely monitored.

Looking ahead, Malaysia's economic outlook remains positive, with investment banks expecting growth to exceed 5% in 2026. However, the economy is not without risks, and the government will need to continue implementing policies to support domestic spending and attract foreign investment. The performance of the manufacturing sector and the impact of external risks on the economy will be closely watched in the coming months.

As more data becomes available, investment banks will refine their forecasts, providing a clearer picture of Malaysia's economic prospects. For now, the outlook remains cautiously optimistic, with growth expected to remain despite potential external headwinds.

Related: MBSB Investment Bank Bhd