The World Bank has upped its projection for Malaysia’s economic growth in 2025, citing more resilient-than-expected external demand.
Its revised gross domestic product (GDP) forecast for the year stands at 4.1%, versus its earlier pegged 3.9%, the World Bank's lead economist for Malaysia Dr Apurva Sanghi told the press during a briefing on Tuesday.
The adjustment comes on better-than-expected external demand and sustained strength in domestic demand.
“Even though export growth slowed, it has been better than expected, especially in the electrical and electronics segment,” Apurva said.
Meanwhile, he noted that domestic demand had been supported by higher disposable incomes in line with higher median formal sector wages, civil servant salaries, and the government’s cash aid policies.
The World Bank’s growth projection now falls within Bank Negara Malaysia’s forecast of 4.0%-4.8% for 2025. Malaysia’s economy expanded 4.4% in the first half of 2025.
While 2025 was described as “resilient”, Apurva noted that the year ahead is set to be “restrained”.
He said the World Bank expects growth to remain steady at 4.1% in 2026, with expectations for export growth to slow following the frontloading activities this year, while domestic demand is also expected to moderate.
Meanwhile, he also cited the Malaysian economy’s high sensitivity to the economies of its major trading partners, the US and China. According to Apurva, a 1% drop in US growth would translate into a 0.8% drop in Malaysia’s GDP growth, while the same for China would result in a 0.45% drop.
Apurva noted that business confidence — tracked via the purchasing managers index or the RAM business confidence index — has been trending downwards, suggesting that firms may hold off on capital expenditure (capex).
“Firms are now adopting a wait-and-see approach, either delaying or scaling back capex, and we expect gross fixed capital formation, which is investment, to slow from 7.2% this year to 4.7% next year.
“I hope I have been able to convince you why 2026 is going to be a year of restraint, of slowing momentum, and we really shouldn’t pretend things are better than they are,” he added.
Source: theedgemalaysia