Kenanga IB forecasts Malaysia’s GDP growth will ease to 4.2% in 2026, driven by domestic demand but challenged by external trade pressures
KUALA LUMPUR: Malaysia’s economic growth is projected to moderate to 4.2% in 2026, according to Kenanga Investment Bank Bhd.
This follows an estimated expansion of 4.8% in 2025.
The investment bank said domestic demand and continued services sector growth will remain the primary economic drivers.
It noted that external uncertainties, particularly from ongoing US tariff measures, will be a key challenge next year.
“Nevertheless, resilient domestic demand amid continued spending, steady investment flows and continued targeted government support should cushion these external pressures,” Kenanga IB said in a research note.
It expects domestic demand to be supported by strong tourism, a stable labour market and moderate trade gains.
Distributive trade sales are forecast to grow 6.1% in 2026, up from an estimated 5.7% in 2025.
Kenanga IB said sales momentum has been strong, averaging 5.3% year-on-year for the first ten months of 2025.
This was supported by festive spending, rising tourist arrivals and the one-off SARA cash transfer.
The labour market is expected to remain stable with the unemployment rate forecast at 3.0% in 2026.
This stability is underpinned by higher minimum wages and continued job creation in services.
On the external front, export growth is projected to ease to 5.1% in 2026 from an estimated 6.0% in 2025.
Exports grew 6.1% in the first eleven months of 2025 despite several headwinds.
These included weaker mining shipments, supply disruptions and softer commodity prices.
“Looking ahead, external pressures are expected to intensify in 2026 as US tariff effects materialise and China’s economic recovery remains slow,” the bank added.
It also noted that front-loading of orders to the US in 2025 may unwind as demand normalises next year.
