KUALA LUMPUR (April 10): Malaysia’s economic growth is likely to grow by 4.6% before recovering slightly to 4.7% in 2027, according to the Asian Development Bank (ADB). 

The reading was better than ADB's December forecast of 4.3%.

"The delayed effects of tax reforms and restrictive trade measures introduced in 2025 will likely weigh on the economy in the near term. By 2027, although external challenges may persist, planned initiatives under the 13th Malaysia Plan should support growth," said ADB in its latest Asian Development Outlook report released on Friday.

ADB's forecast aligns with the World Bank, Bank Negara Malaysia (BNM) and the government's official forecast. BNM forecast the economy to grow between 4% to 5%, with the Ministry of Finance’s (MOF) projection at 4.0% to 4.5%. The World Bank recently lifted its target to 4.4% from 4.1%.

Malaysia's economy grew 5.2% in 2025, exceeding initial official forecasts of 4% to 4.8%.

The bank said the growth will be supported by substantial investment totalling RM611 billion, but warned of significant downside risks in the event of a prolonged Middle East conflict. 

Meanwhile, inflation is expected to remain manageable, as pass-through effects from fiscal policy reforms have so far been contained. 

Some upward pressure may come from tariff adjustments and the delayed impact of the higher sales and services tax. 

Additionally, rising oil prices could raise production costs and eventually lead to higher prices for goods. Inflation is projected at 1.8% in 2026 and 1.9% in 2027. 

The ringgit is expected to strengthen, averaging slightly above 4.00 per US dollar, reflecting stronger confidence in the domestic economy and investment climate.

A stronger ringgit can reduce import costs for domestic-driven sectors but may pose challenges for export industries with revenues largely in US dollars. 

External factors continue to pose the greatest downside risks, as geopolitical tensions and shifts in trade policies could disrupt global trade flows and weaken demand."

Growth prospects may suffer if major trading partners experience slower-than-expected growth. 

The Middle East conflict could have mixed effects: higher oil prices may support Malaysia’s oil commodity exports, but persistently elevated prices can raise costs and dampen consumption and production. 

Exports may face headwinds from global developments, though the technology sector should benefit from broad-based recoveries in artificial intelligence (AI), automotive, industrial, and consumer electronics, with global semiconductor sales forecast to rise 26% in 2026. 

On the downside, growth in electrical and electronics exports may be constrained by the 25% US tariff on AI chips introduced in January.

Businesses remain cautiously optimistic 

The business outlook remains cautiously optimistic, with conditions stabilising after mid-2025 volatility and firms reporting renewed production and more manageable costs, citing the first quarter 2026 Business Tendency Survey.

Government measures to mitigate risks include an additional RM2.5 billion for the central bank’s SME fund and a planned transition towards RM10 billion in guaranteed financing. 

Domestic consumption should stay resilient, supported by employment and income growth, as well as civil service salary adjustments and social assistance programmes providing RM50 to RM200 for eligible beneficiaries. 

However, higher prices from the delayed effects of the expanded sales and services tax may constrain discretionary spending, and increased fuel subsidy burdens have prompted a reduction in the monthly subsidised fuel quota from 300 to 200 liters per citizen. 

Tourism growth will support the services sector, reinforced by the Visit Malaysia 2026 campaign aiming to attract 47 million visitors, while domestic tourism is encouraged by a special income tax deduction of up to RM1,000. 

Construction and investment will likely continue to rise, driven by strong demand for data centres — expected to double capacity by end-2026 — and water-related projects, alongside ongoing public infrastructure such as the Pan Borneo Highway, Johor-Singapore Economic Zone, and development in Sarawak and Sabah, each receiving at least RM6 billion under the 2026 budget.

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World Bank lifts Malaysia's growth outlook to 4.4% despite global headwinds