Malaysia’s economy is expected to have expanded slightly faster than initially estimated in the second quarter of 2026, with MBSB Research forecasting gross domestic product (GDP) growth of 5.9% year-on-year (y-o-y), marginally above the Department of Statistics Malaysia’s (DOSM) advance estimate of 5.8%.
The forecast comes ahead of Bank Negara Malaysia’s 2Q 2026 GDP briefing today, with MBSB Research pointing to resilient domestic demand, stronger external trade and robust construction activity as key drivers of the quarter’s performance.
Malaysia’s GDP grew 5.4% y-o-y in the first quarter of 2026. The advance estimate released in July had indicated growth of 5.8% in the second quarter.
MBSB Research said domestic demand is expected to remain an important anchor for the economy, supported by resilient distributive trade activity, stable employment and relatively contained inflation.
Distributive trade expanded 12.1% y-o-y during the quarter, although retail trade growth moderated to 6.7%. Spending on motor vehicles also picked up, pointing to continued household activity despite some moderation in consumer momentum towards the end of the quarter.
Labour market conditions remained supportive, with employment rising sustainably by 1.1% y-o-y, while the unemployment rate edged up slightly to 3.0% from 2.9% in the first quarter.
Headline inflation accelerated to 2.0% y-o-y in the second quarter from 1.6% in the previous quarter. Nevertheless, MBSB Research said purchasing power remained relatively supportive despite higher energy costs.
External trade is also expected to make a stronger contribution to economic growth in the second quarter.
Goods exports surged 42.4% y-o-y, significantly outpacing the 25.4% increase in imports and widening the quarterly trade surplus to RM84 billion, compared with RM63.2 billion in the first quarter.
The strong export performance was driven mainly by robust demand for electrical and electronics (E&E) products and re-exports. MBSB Research cautioned that part of the increase reflected base effects and front-loading, but said the significantly wider trade surplus nevertheless points to a stronger external contribution to GDP.
Tourism activity is also expected to have supported the improvement in services exports during the quarter.
Among the production sectors, MBSB Research expects manufacturing growth to remain broadly in line with the advance estimate, with the manufacturing Industrial Production Index expanding 7.4% y-o-y in 2Q 2026.
Construction, however, presents the clearest upside signal.
The value of construction work done rose 8.8% y-o-y in the second quarter, accelerating from 8.5% in the first quarter. DOSM data showed growth was particularly strong in special trade activities and non-residential buildings.
By contrast, mining activity weakened sharply in June, suggesting some downside risk to the 10.2% advance estimate for the sector. Agriculture is also expected to remain weak, weighed down by lower crude palm oil and natural rubber production.
Taking the various indicators into account, MBSB Research expects 2Q 2026 GDP growth to come in at 5.9%, slightly above the 5.8% advance estimate.
The upside is expected to come primarily from stronger construction activity and the wider trade surplus, while manufacturing and services are likely to remain broadly in line with the advance readings.
Looking beyond the second quarter, MBSB Research expects economic growth to moderate in the second half of the year as favourable base effects fade.
Elevated energy prices and continued geopolitical uncertainty could also weigh on domestic and external demand.
Nevertheless, the research house expects Malaysia to maintain growth of around 5.0% for 2026, marking a third consecutive year of approximately 5% expansion, supported by the stronger-than-expected performance in the first half and robust external trade.
The outlook broadly aligns with market expectations that Malaysia will record another year of resilient growth despite external headwinds. A recent Reuters poll of 21 economists had placed 2Q GDP growth at 5.8%, with forecasts ranging between 5.7% and 6.0%
