Kuala lumpur: Bank Negara Malaysia (BNM) estimates Malaysia's economy to grow between four per cent and five per cent this year compared with 5.2 per cent registered in 2025, with the country's domestic resilience and diversified export structure continuing to provide buffer to navigate the current external headwinds mainly from conflict in West Asia.
According to BERNAMA News Agency, household spending, expanding investment, and sustained global demand, particularly for electrical and electronics (EandE) exports, alongside steady tourism amid Visit Malaysia 2026 and Malaysia's position as a net energy exporter, are expected to help the country navigate ongoing geoeconomic shifts, which represent evolving structural changes with long-term implications. The BNM Economic and Monetary Review 2025 reported that the services sector, contributing 59.6 per cent to the country's Gross Domestic Product (GDP), is expected to grow at 5.2 per cent this year, with the consumer-related subsector expected to remain resilient as household spending continues.
Continued operationalisation of data centre activities will support ICT subsector growth, while the transport and storage subsector will benefit from air passenger traffic driven by tourist arrivals, the commencement of LRT3, new highways, and continued trade growth. The manufacturing sector, which accumulated 23 per cent of the GDP, will continue to grow at a more moderate pace at 4.3 per cent.
The EandE industry will be supported by strong demand related to AI, while consumer-related industries are expected to benefit from resilient household spending. Meanwhile, growth in the agriculture, mining, and quarrying sectors is expected to contract in their contribution to GDP, each at -1.0 per cent and -1.2 per cent in 2026. The construction sector is expected to expand by 9.1 per cent, driven by continued activities across all subsectors.
While some large infrastructure projects are nearing completion, growth in the civil engineering subsector will continue, supported by sustained government development expenditure, including for provision and upgrades of essential public infrastructure under Budget 2026. BNM also noted that investment activity will continue to expand at a more moderate pace, with the EandE sector benefiting from strong semiconductor demand and ongoing data centre investments.
BNM cautioned that the conflict in West Asia may weigh down exports and tourism activities. External downside risks could arise from weaker global trade amid the conflict and tariffs. For the domestic sector, lower-than-expected commodity production due to adverse weather conditions or unplanned maintenance could weigh on growth prospects. On the upside, a better-than-expected global growth outlook, stronger demand for EandE, and robust tourism activity could boost Malaysia's export and growth prospects.
Domestic demand will remain the main driver of growth, supported by steady private sector spending. Household spending will continue to be underpinned by firm labour market conditions and ongoing fiscal support, with employment growth continuing and the unemployment rate expected to remain low at 2.9 per cent. Continued income, supported by steady economic growth and civil servant salary adjustments, will support private consumption, which is expected to grow by five per cent this year.
Investment activity is expected to maintain momentum from the current investment upcycle, with the realisation of a high number of approved projects in 2025 providing a solid foundation for continued growth. Ongoing public investment projects, particularly in transport and energy-related projects, will continue to support growth throughout the year. Risks from reshoring of foreign investments are likely to remain contained, with strong global demand for AI-related technologies and services supporting investment growth in 2026.
Malaysia's trade outlook is expected to remain challenging in 2026 as exporters contend with new developments and uncertainties surrounding tariff and geopolitical conflict. However, the country's diversified export structure is expected to cushion the impact. Import growth is expected to pick up in line with the gradual recovery of intermediate imports to support the expansion of manufactured exports.
As an open economy, Malaysia's growth and inflation outlook is sensitive to geopolitical and global energy price developments. The West Asia conflict impacts the domestic economy through higher energy prices, weaker external demand, and increased risk aversion, which could lead to more volatile capital flows across emerging markets, including Malaysia. However, these effects may be mitigated by higher commodity-related export earnings, given Malaysia's position as a net energy exporter. Targeted fuel subsidies would help cushion the transmission of higher global energy prices to domestic inflation and the economy. The overall impact will depend on the duration and severity of the conflict and its effects on global energy production and logistics.