Kuala lumpur: Malaysia’s economic growth is projected to sustain a rate of 4.1 percent in 2026, consistent with its 2025 forecast, as indicated by the World Bank.
According to BERNAMA News Agency, the World Bank’s lead economist for Malaysia, Dr. Apurva Sanghi, noted that the growth momentum is experiencing a slowdown and that 2026 is expected to be constrained due to various external and domestic factors. Dr. Sanghi highlighted that Malaysia’s economy is particularly sensitive to developments in the United States and China, which could limit growth prospects.
Dr. Sanghi stated that private consumption will primarily drive Malaysia’s economic growth, supported by factors such as wage increases, government transfers, and accommodative monetary policy. He explained that a one percentage point reduction in US growth could lead to a 0.8 percentage point decrease in Malaysia’s estimated growth, while a similar decline in China’s growth could reduce Malaysia’s growth by 0.45 percentage points.
He further elaborated that the impact of a slowing US economy is more significant for Malaysia compared to a slowing Chinese economy. Domestic demand and confidence among households and firms have also waned, as evidenced by business sentiment indicators like the RAM Index and Purchasing Managers’ Index (PMI).
On the subject of trade and technology challenges, Dr. Sanghi expressed concerns about Malaysia’s position in the electrical and electronic sector, particularly in advanced semiconductor production. He noted the dominance of Taiwan and South Korea in AI-related chips and anticipated flat export growth at 2.9 percent in 2026, while import growth is expected to decrease to 3.7 percent from 4.5 percent.
Dr. Sanghi pointed out that Malaysia’s low research and development spending and limited local innovation are challenges that need addressing, with only 13 to 18 percent of patents filed by Malaysians. He also emphasized the necessity for fiscal consolidation to maintain sustainable debt levels, as Malaysia’s debt to GDP ratio is currently at 64 percent.
He mentioned the Fiscal Responsibility Act (FRA), which mandates reaching a 60 percent debt ceiling within three to five years. Dr. Sanghi suggested the need for stronger revenue mobilization beyond Sales and Service Tax (SST) and tax compliance, advising against relying solely on increasing SST rates or scope.
He concluded by recommending that Malaysia should liberalize trade beyond the US, leverage ASEAN growth linkages, and reduce restrictions in services trade. Dr. Sanghi emphasized the importance of firm-level reforms to improve the business environment, reduce corruption, and level the playing field between formal and informal sectors, noting that Malaysia’s economic future depends on productivity, innovation, and deeper integration.