As an open economy, Malaysia's growth outlook remains closely tied to conditions in its major trading partners, including China, Japan, the Euro Area and Asean, all of which are expected to experience slower growth in 2026 compared with 2025.
OCBC senior Asean economist Lavanya Venkateswaran said Malaysia's electrical and electronics (E&E) exports are likely to broadly track World Semiconductor Trade Statistics forecasts for global semiconductor shipments in 2025.
She added that large import bills are expected to be staggered, allowing the country to maintain a comfortable trade surplus despite moderating export growth.
"The preservation of trade and current account balances is, in our view, a pillar of Malaysia's macroeconomic stability. Imports, in seasonally adjusted terms, peaked in April 2025," she said, noting that a moderation in imports going forward could also weigh on investment spending.
Malaysia's gross domestic product (GDP) growth is projected to ease to 3.8 per cent year-on-year (YoY) in 2026, from an estimated 4.8 per cent in 2025.
Lavanya expects the slowdown to be gradual, with growth moderating to 3.9 per cent YoY in the first half of 2026 before easing further to 3.8 per cent in the second half.
"We see slower economic growth being driven mainly by a payback from the frontloading of exports to the US through 2025, as well as modestly slower investment spending," she said in a note today.
Recent data already point to some loss of momentum. Industrial production (IP) growth slowed to 4.3 per cent YoY in November from 6 per cent in October, reflecting weaker mining and manufacturing output, although electricity production improved.
Manufacturing, which accounts for roughly 68 per cent of total IP, saw broad-based declines across food, textiles, petroleum, non-metallic products, and electrical and electronics (E&E).
E&E production remained strong at 10.8 per cent YoY, although lower than October's 13.4 per cent.
Export-oriented IP growth slowed to 5.0 per cent YoY from 7.2 per cent, while domestic-oriented IP growth edged down slightly to 4.6 per cent YoY from 4.9 per cent.
Despite softer near-term data, OCBC expects Malaysia to end 2025 on solid footing.
Lavanya said the bank's tracking estimate for fourth-quarter 2025 GDP growth stands at 5.4 per cent, supported by industrial production growth of 5.1 per cent in October and November, resilient services activity in wholesale and retail trade, and strong motor vehicle sales.
"This will take full-year 2025 GDP growth to 4.8 per cent, at the top end of the government's 4.0 to 4.8 per cent target for the year," she added.
Looking ahead, Lavanya said OCBC forecasts slower global growth of 3.3 per cent YoY in 2026, down from 3.4 per cent in 2025.
Source: NST