Kuala lumpur: The World Bank Group has raised Malaysia's economic growth forecast for 2026 to 4.4 per cent from 4.1 per cent, citing resilient domestic demand, its lead economist for Malaysia, Apurva Sanghi, said. He noted that growth would be driven mainly by private consumption, underpinned by favourable labour market conditions, wage gains, and government income support measures.
According to BERNAMA News Agency, domestic demand is expected to be strong this year due to favourable labour market dynamics, with real median wages rising by six per cent last year, as well as continued government support where required. Private consumption is identified as a key contributor to growth, which was highlighted during a briefing on Part 1 of the World Bank's April 2026 Malaysia Economic Monitor (MEM), titled 'Raising the Ceiling, Raising the Floor, Advancing Malaysia's Jobs and Productivity Agenda.'
Last year, Malaysia's economy grew by 5.2 per cent on account of strong domestic demand and favourable exports. The projection for this year is above the regional growth of 4.2 per cent, with the outlook also influenced by three external factors: the West Asia conflict, US tariffs, and China's re-direction.
On the West Asia conflict, the ongoing crisis is expected to heighten global economic uncertainty, with its impact remaining difficult to predict given the rapidly evolving situation. Fluctuations in crude oil prices, nitrogen-based fertiliser prices, and LNG shipments to Asia have been noted, underscoring the downside risks to the 4.4 per cent forecast for 2026.
Regarding US tariffs, about 46 per cent of Malaysia's exports are currently exempt, largely due to its strong electrical and electronic (E and E) and machinery segments. However, these exemptions could be withdrawn at short notice, posing significant risks to Malaysia's economy, given its reliance on the E and E sector, which accounts for nearly 30 per cent of the country's domestic value-added.
China's export re-direction to third markets, driven by weak domestic demand and expanding industrial capacity, is another factor shaping the regional economic landscape. Malaysia has recorded the fourth-largest increase in exports from China among ASEAN countries, though its exposure is more moderate compared to regional peers like Vietnam, Thailand, and Indonesia.
Malaysia's imports from China include not only consumption goods but also intermediate and capital goods that support domestic production. This balanced structure is relatively favourable, as an influx dominated by low-cost consumption goods could otherwise pose greater risks to local manufacturing. Concerns over an influx of Chinese goods should be assessed carefully, with policymakers encouraged to adopt targeted measures rather than broad-based restrictions on bilateral trade.