SINGAPORE, February 6, 2026 – The Malaysian economy has demonstrated notable resilience despite rising global trade protectionism and geopolitical tensions. Robust electronics exports and AI-related investment have supported growth, reflecting Malaysia’s entrenched position in global semiconductor and electronics value chains and its gains from the ongoing global tech upcycle. Political stability as well as policy clarity and credibility have reinforced investor confidence. Sustaining this investment momentum will require preserving macroeconomic and financial resilience, deepening domestic capabilities, and strategically positioning Malaysia as a trusted hub amid geoeconomic fracturing.

This preliminary assessment follows AMRO’s Annual Consultation Visit to Malaysia from January 26 to February 6, 2026. The mission was led by Lead Economist Kian Heng Peh. AMRO Director/CEO Yasuto Watanabe and Chief Economist Dong He participated in the policy discussions and met with Bank Negara Malaysia (BNM) Governor Dato’ Sri Abdul Rasheed Ghaffour and Deputy Minister of Finance Liew Chin Tong.

Economic developments and outlook

“Malaysia’s economy outperformed expectations in 2025, supported by robust domestic demand and the global tech upswing,” said Mr. Peh. “Growth is expected to remain firm in 2026, moderating slightly to 4.6 percent from the estimated 4.9 percent in 2025 amid persistent external headwinds.”

Inflation has remained low, reflecting contained cost pressures and limited pass-through from subsidy rationalization and the broadened sales tax and service tax (SST). Headline inflation is projected to average 2.0 percent in 2026, with price pressures expected to remain contained.

Following a pre-emptive 25 basis point rate cut in July 2025, BNM held the policy rate steady for the remainder of the year. Benign inflation and a steady growth outlook support maintaining the current monetary stance.

The external sector remains sound, underpinned by strong electronics exports, tourism recovery, and sustained FDI inflows. The current account surplus rose to 2.0 percent of GDP for the first three quarters of 2025, from 1.4 percent in 2024. The ringgit appreciated by 10.1 percent against the US dollar in 2025, the largest among regional currencies. Foreign reserves remain adequate to cover short-term external debt.

Fiscal consolidation remains on track. The fiscal deficit is expected to narrow to 3.8 percent of GDP in 2025, from 4.1 percent in 2024, extending the consolidation trend since 2022. Revenue gains from SST expansion and improved tax compliance following e-invoicing rollout, together with subsidy rationalization, have strengthened fiscal outcomes.

Risks and opportunities

Downside risks stem from renewed trade frictions—including higher tariffs and tighter technology controls—which could disrupt export-oriented manufacturing and delay multinational investment. A sharper-than-expected cooling of the global AI cycle could dampen electronics and data center-related demand and trigger global financial market volatility.

Upside potential includes a stronger global tech upswing, faster realization of approved FDI projects with larger spillovers, and more robust tourism activity.

Policy priorities

Malaysia is undergoing a nascent investment upcycle that presents a timely opportunity to accelerate structural upgrading and lift long-term growth potential. To translate this momentum into durable gains, policy priorities should focus on preserving macro-financial resilience, deepening domestic capabilities, and strategically positioning the economy amid geoeconomic fracturing.

  • Monetary policy: Maintain a supportive stance to sustain domestic credit and growth, while carefully monitoring inflation and financial stability risks.
  • Foreign exchange (FX) and financial sector policy: Continue to strengthen reserve buffers and maintain ample system liquidity to mitigate potential FX and credit shocks. Periodic assessment of macroprudential safeguards and continued development of digital finance can support stability and inclusion.
  • Fiscal policy: Pursue more ambitious fiscal consolidation to reduce public debt and create durable fiscal space, including broadening the tax base and revisiting the RON95 fuel subsidy design to redirect resources toward productivity-enhancing spending and targeted social support. Governance reforms and improved tax administration will further enhance fiscal efficiency.
  • Structural policy: Navigate strategic competition through pragmatic economic diplomacy, market and technology diversification, and deeper integration with ASEAN+3 economies. Developing the semiconductor and rare earth sectors can strengthen resilience and anchor Malaysia more firmly in emerging industries. The current investment upcycle offers a critical window to upgrade industrial capabilities, human capital, and productivity on a sustainable path toward high-income status.

The AMRO team thanks the Malaysian authorities and participating organizations for their close cooperation and candid discussions during the mission.

About AMRO

AMRO is an international organization established to support macroeconomic resilience and financial stability of the ASEAN+3 region, comprising members of the Association of Southeast Asian Nations (ASEAN) and China; Hong Kong, China; Japan; and Korea. AMRO’s mandate is to conduct macroeconomic surveillance, support regional financial arrangements, and provide technical assistance to the members. In addition, AMRO also serves as a regional knowledge hub and provides support to ASEAN+3 financial cooperation.