KUALA LUMPUR: Malaysia’s economic growth may moderate to 3.8 per cent this year from an estimated 4.8 per cent in 2025 as external demand normalises and global geopolitical risks remain elevated, according to OCBC.
Its head and chief economist Selena Ling said Malaysia’s growth slowdown is likely to be gradual, with gross domestic product (GDP) expanding 3.9 per cent in the first half of 2026 and easing slightly to 3.8 per cent in the second half.
“The moderation largely reflects payback from front-loading of exports to the US in 2025, as well as more measured investment spending,” Ling said, noting that export growth to the US is expected to remain volatile this year.
OCBC forecasts Malaysia’s goods export growth to slow to 2.2 per cent in 2026, from 6.5 per cent in 2025, as tariff exemptions are largely clarified and the incentive to front-load shipments diminishes.
That said, Ling highlighted upside risks to growth if the artificial intelligence (AI) and data centre-led investment cycle continues to gain traction.
Malaysia benefited strongly from the global electronics upcycle in 2025, alongside regional peers such as Singapore, Taiwan and South Korea, driven by demand linked to artificial intelligence, data centres and digitalisation.
“While some moderation is expected after the rapid expansion of recent years, the structural drivers of the electronics cycle remain intact,” she said.
OCBC expects Malaysia’s longer-term growth outlook to improve to around 4.0 per cent to 4.5 per cent in 2027–2028, supported by ongoing structural reforms, national economic masterplans and resilient foreign direct investment inflows.
Johor, in particular, is expected to continue attracting investments due to initiatives such as the Johor-Singapore Special Economic Zone, especially for data centre developments.
On policy, Ling said fiscal consolidation remains a key anchor for Malaysia’s macroeconomic stability.
She expects fiscal support in 2026 to stay targeted, giving Bank Negara Malaysia some flexibility on monetary policy.
“We remain comfortable with our call for a 25 basis point rate cut from Bank Negara Malaysia in the first half of 2026,” she said, adding that the key risk to this view is if domestic growth proves more resilient than expected, reducing the need for policy easing.
On the currency, OCBC expects the ringgit’s outperformance against the US dollar in 2025 to carry into 2026, albeit at a more moderate pace.
The supportive backdrop includes the US Federal Reserve’s easing cycle, a less aggressive US dollar, a steadier Chinese renminbi and improved global risk sentiment linked to AI optimism.
Malaysia’s domestic fundamentals also remain supportive, Ling said, citing quality FDI inflows, a wider trade surplus, upbeat growth conditions and the government’s commitment to fiscal discipline.
“These factors should continue to bolster foreign investor confidence and support portfolio inflows,” she said.
She added that policymakers’ constructive messaging, including earlier indications that the US dollar-ringgit exchange rate could trade just below 4.00 by mid-2026, has already contributed to improved sentiment, with external conditions remaining favourable.
Looking ahead, Ling said 2026 will be marked by uneven but manageable global growth, with risks increasingly driven by geopolitics rather than traditional macroeconomic imbalances.
“For Malaysia, the balance of probabilities still favours stability, though with pockets of volatility that will require vigilance,” she said.
© New Straits Times Press (M) Bhd
