Strong domestic demand keeps Malaysian economy on expansion track

KUALA LUMPUR - Malaysia’s second quarter (2Q 2026) gross domestic product (GDP) growth is expected to moderate to 4.8-5.0 per cent from 5.4 per cent in 1Q 2026, an economist said.

IPP Financial Advisers (IPPFA) director of investment strategy and country economist, Mohd Sedek Jantan said Malaysia's domestic economy remains resilient, despite heightened geopolitical tensions in West Asia and renewed volatility in global energy prices.

"We believe stronger domestic demand, resilient external trade and a supportive policy environment more than offset external headwinds, allowing economic activity to remain on a solid expansion path,” he said in a statement today.

Meanwhile, Mohd Sedek said that although manufacturing activity softened during parts of the quarter, business conditions improved progressively, with the manufacturing purchasing managers index (PMI) recovering from 49.9 in May to 50.5 in June, signalling a return to expansion. 

He said this suggests that manufacturers had successfully navigated supply chain disruptions and external uncertainties while continuing to benefit from the global artificial intelligence-driven technology upcycle and sustained demand for electrical and electronic exports.

Domestic demand also remained as the principal engine of growth, with wholesale and retail trade at RM174 billion in April and RM171 billion in May -- among the strongest readings since the observation period began in 2024.

This reflects resilient household consumption despite elevated living costs, he added.

"Macroeconomic fundamentals remained supportive throughout the quarter, with inflation staying well contained despite higher global crude oil prices, largely due to the government's decision to maintain the RON95 petrol subsidy at RM1.99 per litre, limiting pass-through to transportation and consumer prices.

"At the same time, Bank Negara Malaysia's stable and predictable overnight policy rate continued to support credit growth, business investment and household spending without creating excessive inflationary pressures,” he said.

Mohd Sedek said the Malaysian economy appears to be increasingly supported by stronger internal demand and policy stability.

He said the combination of resilient consumption, improving investment sentiment, robust exports and contained inflation suggests that growth remained broad-based rather than concentrated in a single sector.

"Consequently, we expect Malaysia's economy to maintain a healthy momentum in 2Q 2026, reinforcing our confidence that the country remains on track to achieve our 2026 full-year GDP growth forecast of 4.6 per cent.

"Despite that, geopolitical developments and global trade conditions will continue to warrant close monitoring,” he said.

Malaysia's 2Q 2026 GDP advance estimates are scheduled to be released by the Department of Statistics Malaysia (DOSM) this Friday (July 17). - BERNAMA