Kuala lumpur: Malaysia’s economy is expected to grow at a moderate pace in 2026 amid heightened global trade uncertainties and subdued external demand, as reported by the Ministry of Finance (MOF).
According to BERNAMA News Agency, in its Pre-Budget Statement 2026, the MOF indicated that growth will be anchored by resilient domestic demand, with a particular focus on private investment, stable employment, and income-enhancing measures such as targeted cash transfers and wage increases. The tourism sector, propelled by Visit Malaysia 2026, is also anticipated to significantly bolster services growth.
Budget 2026 will prioritize strengthening domestic growth sources, diversifying export markets, and expanding household income opportunities. Public investment will be propelled through strategic projects under the 13th Malaysia Plan (13MP) and increased domestic direct investment (DDI) by government-linked investment companies (GLICs). This will be facilitated through the Government-linked Enterprises Activation and Reform Programme (GEAR-uP), aiming to reinforce foundations for inclusive and sustainable economic resilience.
In the first quarter of 2025, Malaysia’s GDP expanded by 4.4 percent, driven by household consumption, investment, and the construction sector. This momentum is projected to continue into the second quarter of 2025, with an advance estimate indicating growth at 4.5 percent. Despite global developments, the Malaysian economy is projected to expand by 4.0 percent to 4.8 percent in 2025.
Inflation further declined to 1.1 percent in June 2025 from 2.0 percent the previous year, marking the lowest pace in 52 months. The labour market also showed improvement, with the national unemployment rate declining to 3.0 percent in May 2025, from 3.3 percent in May 2024.
The government remains committed to fiscal consolidation, targeting a reduction in the fiscal deficit to 3.8 percent in 2025, down from 4.1 percent in the preceding year. This is part of a gradual consolidation from 5.0 percent in 2023 and 5.5 percent in 2022. New debt has decreased from RM99.4 billion in 2022 to RM92.6 billion in 2023, with a continued downward trajectory in 2024, resulting in new debt amounting to RM76.8 billion.
The ringgit has emerged as one of Asia’s best-performing currencies as of August 6, 2025, appreciating 5.8 percent to RM4.2270 against the US dollar. Demand for the ringgit remains supported by strong economic fundamentals and investor confidence.
Key government initiatives have shown significant results, including securing RM384.4 billion in approved investments in 2024, marking the second consecutive year of record-breaking performance. Malaysia also received credit ratings of A3 by Moody’s Investor Service, A- by S and P Global Ratings, and BBB+ by Fitch Ratings, all with a ‘Stable’ outlook.
Malaysia made a notable leap in the IMD World Competitiveness Ranking 2025, jumping 11 spots to 23rd out of 69 economies, achieving its best showing since 2020 and being the only country to record a double-digit improvement. The GEAR-uP programme has mobilised RM11 billion in investments into high-growth sectors, with leading GLICs and their associated GLCs committing to a RM3,100 minimum wage for 153,000 workers.
The government has shifted to targeted subsidies, increasing Sumbangan Tunai Rahmah (STR) and Sumbangan Asas Rahmah (SARA) allocations to RM15 billion, including a one-off RM100 SARA credit for all adults. Fiscal resilience is being strengthened through tax base expansions and new tax measures.
Infrastructure upgrades include the Light Rail Transit Line 3 (LRT3), Electric Train Service (ETS) extension to Johor Bahru, East Coast Rail Link (ECRL), and Rapid Transit System (RTS) Link, along with healthcare and climate projects such as Hospital Sultanah Aminah 2 and RTB Kota Bharu. In Sabah and Sarawak, priorities remain on expanding access to roads, clean water through the construction of a water treatment plant in Landeh, Sarawak, and rural connectivity, including the construction of the main electricity supply substation in Paitan, Sabah.