Malaysia’s economic outlook remains resilient despite a challenging global backdrop, with rising trade protectionism and geopolitical tensions offset by strong domestic demand and robust electronics exports, according to the ASEAN+3 Macroeconomic Research Office (AMRO).
In its 2026 Annual Consultation Report on Malaysia, AMRO said growth is expected to remain firm in the near term, ease in 2026 and stabilise around potential by 2027.
However, it warned that risks are tilted to the downside amid geopolitical uncertainties, trade tensions and a possible cooling of the artificial intelligence-driven investment cycle.
A central theme of the report is an ongoing investment upcycle, which AMRO described as a key catalyst for accelerating structural transformation and lifting Malaysia’s long-term growth potential.
The country’s resilience, AMRO noted, is underpinned by sound macroeconomic policies, steady foreign direct investment inflows, contained inflation and stable financial conditions.
However, it flagged persistent structural issues including wage stagnation, talent gaps, a narrow fiscal revenue base and elevated debt levels.
On policy direction, AMRO said Bank Negara Malaysia should maintain a supportive monetary stance to sustain credit growth and domestic demand, while remaining vigilant on inflation and financial stability risks.
It also recommended strengthening foreign exchange buffers, maintaining ample liquidity and regularly reviewing macroprudential safeguards, alongside continued development of Malaysia’s digital finance ecosystem.
On the fiscal front, AMRO urged continued consolidation to rebuild fiscal space, including revisiting fuel subsidy rationalisation, broadening the tax base and eventually reintroducing the goods and services tax, supported by stronger tax administration and governance reforms.
Structurally, the report emphasised the need for Malaysia to navigate US-China strategic competition through pragmatic economic diplomacy, diversification of trade and technology sources and deeper integration with ASEAN+3 economies.
AMRO added that sectors such as semiconductors and rare earths could provide strategic leverage, while capitalising on the investment upcycle to upgrade industrial capacity, human capital and productivity will be key to securing a sustainable path toward high-income status.
