Malaysia’s economic growth forecast for 2026 has been upgraded to 4.7% from 4.5%, supported by stronger-than-expected performance in the electrical and electronics (E&E) sector, resilient domestic demand and continued investments in data centres, according to Hong Leong Investment Bank (HLIB).
The revised outlook was presented by HLIB Chief Economist Felicia Ling during an economic outlook webinar hosted by ICAEW Malaysia, which examined the country’s economic prospects for the second half of 2026.
Despite the improved full-year outlook, Ling said growth is expected to moderate in the second half of the year following the strong momentum recorded in the first six months.
“Malaysia’s expansion remains broad-based, led by manufacturing, services and construction, while global semiconductor demand and data centre investments continue to provide key growth support,” she said.
Semiconductor cycle boosts manufacturing
HLIB said Malaysia’s manufacturing sector continues to benefit from a robust global semiconductor upcycle, with the worldwide semiconductor market projected to expand by 90% in 2026, driven by demand for artificial intelligence (AI) infrastructure and high-performance computing.
The stronger global chip cycle has translated into higher Malaysian E&E exports, particularly electronic integrated circuits, data storage products, telecommunications equipment and printed circuit boards.
According to the bank, the export momentum is expected to continue supporting industrial production as Malaysia’s E&E performance closely tracks global semiconductor sales.
Consumption and tourism underpin services
The services sector remains another key pillar of growth, supported by resilient household spending and tourism recovery.
Household loans increased 5.2% year-on-year, while credit card spending rose 10.2%, indicating sustained consumer demand.
Meanwhile, wages in the services sector climbed to RM7,592 during the first quarter of 2026, providing additional support for household purchasing power.
Data centres reshape investment landscape
HLIB noted that the country’s investment landscape is undergoing a structural shift, with data centre-related projects emerging as a major growth driver.
Approved investments reached RM431.1 billion in 2025, driven largely by inflows into information and communications technology (ICT) projects linked to data centres.
However, the bank cautioned that easing capital imports suggest the pace of new investments could moderate in the coming quarters.
Speaking during the webinar, KPJ Healthcare Bhd Chief Financial Officer and ICAEW Fellow Mohd Khairul Izzad Mohammed Shamsudin said businesses must remain disciplined in capital allocation despite new investment opportunities.
“For businesses outside the tech sector, the data centre investment wave is a reminder that structural shifts create both opportunity and cost,” he said, adding that resilience requires investments in supply chain diversification, inventory management and talent retention.
Fiscal deficit revised slightly higher
On the fiscal front, HLIB expects Malaysia’s fiscal deficit to widen marginally to 3.6% of gross domestic product (GDP), compared with the government’s earlier target of 3.5%.
The increase is expected to be managed through revenue measures and operating expenditure adjustments rather than higher borrowing.
The bank also highlighted a substantial increase in the government’s fuel subsidy allocation, which has been revised upward from RM15 billion to RM40 billion for 2026.
Interest rates seen unchanged
HLIB expects Bank Negara Malaysia (BNM) to maintain the Overnight Policy Rate (OPR) at 2.75% throughout 2026.
The GDP forecast of 4.7% remains within BNM’s official growth range of 4.0% to 5.0%, while inflation is expected to average 2.0%, comfortably within the central bank’s projected range of 1.5% to 2.5%.
Although higher global commodity prices may exert upward pressure on inflation, HLIB believes domestic policy measures and stable demand conditions will help contain price increases.
Malaysia resilient amid global uncertainty
HLIB also noted that Malaysia remains relatively resilient despite ongoing geopolitical tensions and volatility in global energy markets.
The country’s diversified crude oil import sources—including Saudi Arabia, Oman, Sudan, the United Arab Emirates, Angola and the United States—provide greater energy security, even in the event of disruptions to shipping routes such as the Strait of Hormuz.
ICAEW Malaysia said the webinar aimed to equip finance professionals with timely economic insights to support business planning and decision-making as global and domestic economic conditions continue to evolve.
