Malaysia’s economic growth may moderate further in 2026 as global demand softens and external headwinds weigh on exports, according to Australia and New Zealand Banking Group (ANZ).
ANZ pointed out waning global demand, the impact of new tariffs, and moderating global growth as key drags. It foresees that Malaysia’s gross domestic product (GDP) will expand 4.3% in 2025 — still within Bank Negara Malaysia’s revised 4.0%-4.8% forecast — but sees a slightly slower pace of 4.2% in 2026.
“[Malaysia's] growth is slowing and losing breadth with external headwinds weighing on the outlook,” the bank said in its Asia Economic Outlook 4Q2025 report released on Thursday. Malaysia's economic growth stood at 4.4% during the first half of 2025 (1H2025).
Malaysia’s export earnings have already come under pressure, particularly in electrical and electronics products, as producer prices decline and front-loaded US demand fades, the research house noted. Intermediate goods imports also slipped in July and August, signalling further weakness.
Meanwhile, domestic consumption — which makes up about 60% of GDP — remains below its pre-pandemic growth pace as it only expanded 5.2% year-on-year in 1H2025 versus 6.9% pre-Covid, ANZ noted. This comes despite the country enjoying having low unemployment and rising labour force participation.
According to ANZ, this softening comes as more than 60% of new jobs created over the past three years were low- or semi-skilled, resulting in subdued wage growth and constrained purchasing power.
"While government initiatives [to support household spending such as a one-off RM100 cash transfer and subsidies for essential goods] aim to ease cost-of-living pressures, their impact on consumption is expected to be modest," it added.
Overall, ANZ is of the view that investment is expected to remain a key growth driver, with strong momentum in both public and private gross fixed capital formation. Total approved investments surged 32% year-on-year in 1H2025, which ANZ said points to sustained capital formation and near-term support for growth.
On the other side, the research house expects Malaysia's inflation pressures to stay benign. It forecasts headline inflation to average 1.6% in 2025, before rising to 2.5% in 2026, as a modest expansion of the sales and service tax (SST) adds less than 0.25 percentage point while a petrol price cut exerts mild downward pressure.
Across Asia, ANZ expects GDP growth of 4.9% in 2025 — up from a prior 4.1% forecast — before easing to 4.7% in 2026, when the full impact of tariffs and slower global growth is felt.
"Lower [interest] rates and broadly neutral fiscal policies are unlikely to have a significant impact on growth [in the Asia region]," the bank said, though it anticipates regional currencies to benefit from US rate cuts and local currency bond markets to remain well anchored.
Source: theedgemalaysia