Malaysia’s economic growth projection of 4.6% for 2027 and fiscal deficit target of 3.3% of gross domestic product (GDP) are achievable, supported by resilient domestic demand, sustained investment activity and continued fiscal consolidation, according to Hong Leong Investment Bank (HLIB).
The investment bank said the government’s 2027 GDP growth forecast of between 4.2% and 5.2%, with a midpoint of 4.6%, broadly aligns with its own projection of 4.7%.
HLIB also expects the government to meet its fiscal deficit target of 3.3% of GDP, marginally lower than its own forecast of 3.4%, provided economic growth remains sustained.
However, it estimated that tax reductions and exemptions introduced under Budget 2027 could reduce government revenue by approximately RM3 billion, equivalent to around 0.1% of GDP.
“Overall, we view the government’s fiscal deficit target of 3.3% of GDP in 2027 as achievable and broadly aligned with our forecast of 3.4%, underpinned by sustained economic growth,” HLIB said in its Budget 2027 review.
For 2026, the Ministry of Finance (MOF) has revised its GDP growth forecast upwards to between 4.8% and 5.3%, with a midpoint of 5.2%, exceeding Bank Negara Malaysia’s earlier projection of 4.0% to 5.0%.
HLIB maintained its 2026 growth forecast at 5.3%, implying a moderation to 4.8% in the second half of the year.
Services, Manufacturing To Drive Growth Despite Semiconductor Slowdown
HLIB expects Malaysia’s economic expansion in 2027 to remain driven by the services and manufacturing sectors, although growth is projected to moderate from 2026 levels.
The services sector is forecast to grow by 5.2% in 2027 compared with 5.5% in 2026, supported by household spending, tourism activities and continued data centre operations.
Major events, including the Langkawi International Maritime and Aerospace Exhibition (LIMA) 2027 and the 34th SEA Games, are expected to boost wholesale and retail trade, accommodation, and food and beverage businesses.
Manufacturing growth, meanwhile, is projected to moderate to 4.1% from 6.2% in 2026 as export-oriented industries face a slower global semiconductor cycle.
The construction sector is expected to expand by 5.7%, supported by data centre developments and major infrastructure projects, including the East Coast Rail Link (ECRL), Penang LRT Mutiara Line and Pan Borneo Highway Sabah.
On the demand side, private consumption is projected to grow by 4.8% in 2027, while private investment is expected to increase by 7.1%, driven by continued capital expenditure in hyperscale data centres, semiconductors, chemicals and petrochemicals.
However, export growth is forecast to moderate sharply to 3.2% from 11.4% in 2026, reflecting slower semiconductor exports.
Government Revenue To Reach RM380.8 Billion
On the fiscal front, HLIB said the government expects revenue to increase by 4.7% to RM380.8 billion in 2027 from RM363.6 billion in 2026, supported by stronger tax collections and higher petroleum-related income.
Tax revenue is projected to reach RM297.1 billion, while sales and service tax (SST) collections are expected to increase to RM73.3 billion from RM67 billion.
Petronas dividends are projected to rise to RM32 billion from RM27 billion, alongside higher contributions from Bank Negara Malaysia and Khazanah Nasional.
However, after accounting for Budget 2027’s proposed tax reductions and exemptions, HLIB estimated that total revenue could decline to RM377.8 billion, although this would remain above the estimated 2026 collection.
The investment bank said revenue targets remain achievable, supported by stronger tax compliance following the expansion of SST and implementation of electronic invoicing.
Meanwhile, total government expenditure is projected to increase by 3.6% to RM459.8 billion in 2027, comprising RM376.8 billion in operating expenditure and RM83 billion in development expenditure.
The fiscal deficit is expected to narrow to RM77.5 billion from RM78.5 billion in 2026.
RM83 Billion Development Allocation, But Project Execution Remains Key
HLIB highlighted that the RM83 billion development expenditure allocation, covering approximately 1,500 new projects, exceeds its earlier projection of RM80 billion.
However, the allocation remains below the average annual expenditure of RM86 billion envisaged under the 13th Malaysia Plan.
The investment bank cautioned that actual development spending has consistently fallen short of budgeted allocations over the past five years, making implementation capacity a crucial factor.
Transport infrastructure will receive RM17.6 billion, while environmental initiatives are allocated RM3.6 billion and trade and industry programmes RM3.5 billion.
HLIB said effective implementation of infrastructure and industrial development projects would be essential to sustaining investment activity and delivering the intended economic benefits.
Cash Assistance, Wage Increases To Support Household Spending
HLIB said Budget 2027 adopts a measured approach towards addressing cost-of-living pressures while maintaining fiscal discipline, with household consumption supported by higher cash assistance, wage increases and tax relief.
Under the budget, nine million Sumbangan Asas Rahmah (SARA) recipients eligible for Sumbangan Tunai Rahmah (STR) will receive increased monthly assistance of RM150, compared with RM100 previously.
This raises the potential annual assistance to RM1,800 per recipient from RM1,200.
Another 13 million adults who are not eligible for STR will receive two RM100 SARA payments in 2027, ahead of Hari Raya Aidilfitri and Merdeka Day.
The minimum wage will also increase from RM1,700 to RM2,000 per month effective June 2027, although micro, small and medium enterprises with annual revenue below RM50 million will receive a temporary exemption.
Separately, the government plans to introduce a minimum starting salary of RM2,500 for semi-skilled workers and graduates, although the implementation timeline has yet to be announced.
HLIB said the proposed starting salary could significantly benefit households, as semi-skilled workers account for approximately 55% of total employment, with a median monthly salary of RM2,223.
Individual income tax relief will also increase from RM9,000 to RM12,000, accompanied by lower tax rates for middle-income earners and expanded reliefs covering additional expenses.
The investment bank expects these measures to strengthen disposable income, ease cost-of-living pressures and support consumer spending.
Inflation Seen Manageable At 2.1%, Fiscal Consolidation To Continue
HLIB maintained its 2027 inflation forecast at 2.1%, within the government’s projected range of 1.8% to 2.8%.
It expects inflationary pressures to remain manageable despite potential risks from geopolitical tensions, supply chain disruptions, weather-related shocks and domestic policy adjustments.
On fiscal consolidation, the government aims to achieve an average deficit of 3.1% of GDP under its 2027–2029 Medium-Term Fiscal Framework, with a longer-term target of 3.0%.
The government also aims to reduce its debt-to-GDP ratio to below 60% over the medium term, compared with 63.1% as of end-June 2026.
HLIB said sustained economic growth of around 5% and continued fiscal discipline could gradually bring the debt ratio towards 60% by 2030.
Overall, the investment bank viewed Budget 2027 as striking a balance between supporting household spending and investment-led economic growth while maintaining Malaysia’s commitment to fiscal consolidation.
With many structural reforms already introduced in recent years, HLIB said the latest budget places greater emphasis on maintaining a stable economic environment, supporting private consumption and preserving fiscal sustainability over the longer term.
