Kuala lumpur: Malaysia has shown notable resilience against global trade tensions and policy uncertainty with its economy growing at a healthy pace this year, supported by strong domestic consumption and investment, solid employment growth, and a global tech-sector upcycle.
According to BERNAMA News Agency, the strong performance reflects sound economic policies, as noted by International Monetary Fund's (IMF) Mission Chief for Malaysia, Masahiro Nozaki. He emphasized that Malaysian authorities have maintained prudent macroeconomic and financial policies following consultations with Malaysian authorities and other stakeholders.
The October 2025 Malaysia-US trade deal has contributed to reducing uncertainty for businesses and consumers in Malaysia. Despite a global landscape marked by increasing uncertainty, rebuilding Malaysia's macroeconomic buffers remains critical. Malaysia's economic resilience is expected to continue in the near term, supported by strong domestic demand. The IMF projects growth to slow marginally from 4.6 percent in 2025 to 4.3 percent in 2026, mainly due to the impact of higher US tariffs on Malaysia.
The fund highlighted that risks to growth are primarily external, with the potential for downside effects. As a highly open economy, Malaysia could face challenges from a slowdown in external demand due to protectionist trade measures, global financial market volatility, and a potential bust of the artificial intelligence boom. However, there are upside risks, including breakthroughs in global trade negotiations, stronger tourism activities, and faster implementation of structural reforms.
Prudent fiscal management has been a cornerstone of Malaysia's economic strategy. The passage of the landmark Public Finance and Fiscal Responsibility Act in 2023 and a steady reduction in the fiscal deficit since 2022 underscore this commitment. The IMF staff supports the authorities' plan to reduce the fiscal deficit further to 3.5 percent of GDP in 2026 and to 3 percent of GDP by 2028. Efforts to strengthen fiscal transparency and spending efficiency, such as the new Government Procurement Act, are also welcomed.
Monetary policy should remain data-dependent to anchor inflation expectations and preserve growth amid global uncertainty. The IMF staff appreciates the authorities' commitment to exchange rate flexibility and efforts to deepen the foreign exchange market. Systemic financial sector risks are contained, with Malaysian banks maintaining ample capital and liquidity buffers and a stable housing market.
Continued vigilance is essential against vulnerabilities, such as highly leveraged households and banks' exposure to firms affected by US tariffs. The IMF underscores the importance of swift implementation of structural reforms under the 13th Malaysia Plan (13MP) for 2026-30 to drive domestic-driven and inclusive growth. Labour market reforms can aid in achieving development goals under the 13MP, and deeper trade and financial integration within ASEAN can further enhance Malaysia's growth potential.
In conclusion, the IMF team expressed gratitude to the officials of the Government of Malaysia, Bank Negara Malaysia, other public institutions, and private sector representatives for their productive discussions.