Kuala lumpur: Malaysia's gross domestic product (GDP) growth in 2026 is expected to moderate to 4.2 percent from an estimated 4.8 percent in 2025, according to Kenanga Investment Bank Bhd (Kenanga IB). In a research note, the investment bank highlighted that domestic demand and continued expansion in the services sector would remain the primary growth drivers.

According to BERNAMA News Agency, Kenanga IB stated that external uncertainties would continue to pose challenges in 2026, particularly due to ongoing United States tariff measures. The bank noted that resilient domestic demand, steady investment flows, and targeted government support are expected to mitigate these external pressures and sustain a stable growth trajectory.

Kenanga IB emphasized that domestic demand would continue to support growth, bolstered by strong tourism inflows, stable labor market conditions, and moderate gains in trade activity. The investment bank projected that distributive trade sales would grow by 6.1 percent in 2026, compared to an estimated 5.7 percent in 2025 and 5.5 percent in 2024. Sales momentum has remained robust, averaging 5.3 percent year-on-year in the first ten months of 2025, driven by festive spending, rising tourist arrivals, and the Sumbangan Asas Rahmah (SARA) RM100 one-off cash transfer.

Kenanga IB expects the labor market to remain stable in 2026, supported by higher minimum wages, continued job creation in the services sector, and the implementation of approved investments. The bank maintained its unemployment rate forecast at 3.0 percent for 2026, consistent with the stable labor market conditions observed in 2025 and 2024.

On the external front, Kenanga IB anticipates moderate performance in 2026, with export growth projected to ease to 5.1 percent from an estimated 6.0 percent in 2025. Exports grew 6.1 percent in the first eleven months of 2025, hindered by weaker mining shipments, supply disruptions, softer commodity prices, and a stronger ringgit, which affected price competitiveness for certain export commodities.

Looking ahead, Kenanga IB expects external pressures to intensify in 2026 as US tariff effects materialize and China's economic recovery remains slow, placing additional strain on commodity-related exports. The bank added that front-loading to the US in 2025 might unwind in 2026 as orders normalize.