Economic momentum holds firm, say economists

KUALA LUMPUR: Malaysia is unlikely to face an economic slowdown this year, supported by strong growth momentum in October, although uncertainties persist for 2026 as the full impact of potential US tariffs has yet to materialise, economists said.

The assessment follows analysts’ estimates that Malaysia’s gross domestic product (GDP) expanded 6.2 per cent year-on-year in October, the fastest monthly growth recorded this year and the strongest since February 2023.

Maybank Investment Bank Bhd chief economist Suhaimi Ilias and economist Azril Rosli said the estimate was based on key indicators, including the industrial production index (IPI), distributive trade index and crude palm oil output.

However, they cautioned that while October’s reading signals robust momentum, monthly GDP estimates can be volatile, particularly due to seasonal factors such as monsoon-related disruptions and year-end holidays.

Economist Jason Loh noted that the Department of Statistics Malaysia’s (DOSM) leading indicator (LI) released in October points to a moderation in economic momentum in 2026.

He added the latest LI fell 0.8 per cent, largely due to a reduction in semiconductor imports, which could signal softer industrial activity ahead.

“The government, through its Fiscal Policy Committee chaired by Prime Minister Datuk Seri Anwar Ibrahim, who is also the Finance Minister, is urged to stand ready to adjust its medium-term fiscal stance.

“This would be within the framework of the Public Finance and Fiscal Responsibility Act 2023 to respond to any potential fallout from US tariff measures in 2026,” he told Business Times.

Loh said Bank Negara Malaysia’s monetary policy committee (MPC) should ensure that monetary policy remains flexible to navigate the uncertainties expected in 2026.

“The MPC should stand ready to reduce the overnight policy rate further, as any foreseeable risks of inflation should now on the downside, notwithstanding the current hysteria of so-called war between Europe and Russia,” he said.

UniKL Business School economic analyst Associate Professor Aimi Zulhazmi Abdul Rashid said historical trends show that October typically provides a boost to economic activity in the final quarter of the year.

He added that this pattern is expected to hold, noting that Malaysia’s signing of a reciprocal trade agreement with the US has helped provide greater stability to bilateral trade.

Aimi said a strong inflow of foreign tourists towards the year-end has provided support to the domestic economy, particularly retail, food and beverage, and other tourism-related segments.

“This momentum augurs well with the planned Visit Malaysia 2026 that targets more than 40 million foreign tourists. In addition, a surge of orders for manufacturing sectors would also contribute to better trade surplus by year end,” Aimi said.

He said a strong fourth-quarter performance could lift Malaysia’s nine-month cumulative GDP growth of 4.7 per cent to match or exceed the upper end of Bank Negara’s projection of 4.8 per cent.

Bank Muamalat Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said macroeconomic indicators remain supportive of the Malaysian economy, with export growth accelerating to 15.7 per cent in October from 12.5 per cent in the previous month.

He said imports of capital goods surged to 51.9 per cent in October, indicating that investment activity among firms remains healthy.

The IPI rose further to 6.0 per cent in October from 5.7 per cent previously, driven by stronger manufacturing output, which expanded 6.5 per cent compared with 5.0 per cent earlier.

Services-related indicators also improved, with distributive trade sales increasing 7.2 per cent in October from 6.6 per cent previously.

This was largely supported by motor vehicle sales, which rose 8.2 per cent in October from 4.3 per cent in September, and wholesale trade growth of 7.3 per cent, up from 6.9 per cent, while retail trade growth stabilised at 6.8 per cent, slightly lower than 7.0 per cent previously.

Afzanizam added that the labour market remains at full employment, with the unemployment rate holding at a low 3.0 per cent for seven consecutive months as at October.

The economist said the key question now is how Malaysia’s economy will perform in 2026 as the impact of US tariffs is expected to be fully felt.

He added that domestic policy tools, including monetary and fiscal measures, will be activated to support growth.

“At the same time, pro-business policies would mean that the capital expenditure among firms will continue to be implemented.

“In a nutshell, the country has what it takes to maintain a respectable growth in 2026 although slower than 2025 as market and business sentiment will continue to be guarded,” Afzanizam said.

© New Straits Times Press (M) Bhd

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