Malaysia is among the Southeast Asian economies positioned to capture disproportionate upside over the next decade, but converting strong investment momentum in artificial intelligence and semiconductors into sustained growth will require the country to move further up the value chain, according to a new regional outlook by Bain & Company, DBS Bank and Vriens & Partners.
The report, From Tailwinds to Trade-Offs: Southeast Asia Outlook 2026–2035, projects the six largest Southeast Asian economies — Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam — to expand by an average 4.8% annually between 2026 and 2035.
While the regional baseline remains relatively resilient, the report said growth trajectories are increasingly diverging as differences in institutional strength, energy security and technological readiness determine how effectively individual countries can withstand shocks and capture new opportunities.
Malaysia, alongside Singapore and Vietnam, is identified as an economy capable of delivering disproportionately stronger outcomes under a favourable growth scenario, while Indonesia, the Philippines and Thailand are seen as more exposed to downside risks.
Malaysia was also among the economies that outperformed the regional average during 2024 and 2025, supported by AI-linked semiconductor demand, manufacturing exports and investment momentum.
However, the report cautioned that strong exports and foreign investment alone will not be sufficient to secure durable growth.
Recent regional export gains have been heavily driven by electronics and AI infrastructure, but have yet to translate into equally broad productivity improvements across domestic economies.
For Malaysia, this reinforces the need to capture a larger share of value from the semiconductor and AI investment cycle rather than remaining concentrated in lower-value segments of production.
The report identified three policy priorities that will increasingly shape economic performance over the coming decade: institutional resilience, stronger energy systems and the ability to capture the AI dividend.
On institutional resilience, Bain, DBS and Vriens said governance, the rule of law, fiscal stability and deeper capital markets are becoming increasingly important in determining investor confidence, capital retention and policy execution.
Energy availability is also becoming a more significant competitive factor as Malaysia seeks to attract data centres, advanced manufacturing and other power-intensive investments.
The report said reliable grids and bankable renewable energy assets are no longer merely climate considerations but increasingly prerequisites for attracting higher-quality investments, particularly as AI infrastructure drives greater electricity demand.
Capturing the AI dividend, meanwhile, will require countries to move beyond pilot projects towards enterprise-scale adoption, supported by stronger data governance, computing infrastructure and workforce development.
Malaysia’s opportunity therefore extends beyond attracting semiconductor fabrication, data-centre or technology investments, with greater value potentially coming from the development of domestic capabilities, higher-skilled employment and deeper participation in technology supply chains.
The wider Southeast Asian region remains highly dependent on international trade and investment. Net foreign direct investment into the SEA-6 increased 25% in 2025, even as FDI into China declined by 34%.
Trade volumes across the six economies between 2016 and 2025 were equivalent to about 89% of regional GDP, more than twice the global average, highlighting both Southeast Asia’s openness and its exposure to shifts in external demand and global supply chains.
The report said this interdependence means Malaysia’s growth prospects will remain closely tied to developments elsewhere in the region through trade, investment, energy, technology and manufacturing networks.
Singapore, which attracts more than 60% of regional FDI and serves as a major source of investment into Malaysia and other Southeast Asian economies, will continue to play a key role in connecting international capital with regional opportunities.
Overall, Bain, DBS and Vriens said Southeast Asia’s 4.8% growth outlook is achievable but not guaranteed, with policy decisions taken over the next two to three years likely to determine which economies successfully convert today’s investment and technology tailwinds into sustainable long-term growth.
