Malaysia’s Economy to Remain Positive Amid Geopolitical Uncertainty

Kuala Lumpur – Analysts remain optimistic about Malaysia’s economic outlook for 2026, with real industrial output growth continuing to act as the main anchor despite ongoing geopolitical risks.

Economists are maintaining their Gross Domestic Product (GDP) forecasts after March’s Industrial Production Index (IPI) showed steady growth of 3.1%, matching February’s figure. Although slightly below the consensus median forecast of 3.5%, the IPI for the first quarter of 2026 (1Q26) recorded 4.0% growth, compared to 4.9% in the previous quarter.

The manufacturing sector — which accounts for nearly two-thirds of the index — remained strong with 5.5% growth, while sales value rose 5.3% to RM173 billion. Electricity generation increased 4.9%, but the mining sector recorded a decline for the second consecutive month.

Analysts’ Confidence

Hong Leong Bank Investment Research maintained its 2026 GDP growth forecast at 4.5%. “Although potential supply chain disruptions could affect commodity-related production, the electrical and electronics sector remains a strong buffer, supported by the global technology cycle,” they said.

TA Research kept its projection at 4.3% to 4.7%. They expect the official 1Q26 GDP data, due for release this Friday, to show growth below 5.5%, in line with the softer IPI.

Apex Research maintained its forecast at 4.7%, expecting growth to remain robust at 4.9% in the first half of 2026 before moderating to 4.4% in the second half due to a more challenging macro environment.

Risks and Buffers

While manufacturing activity remains resilient, the continued weakness in the mining sector due to supply disruptions is a drag. Analysts warned that prolonged geopolitical conflicts could lead to higher input costs, weaker external demand, and supply chain uncertainties.

However, front-loading activities and inventory stockpiling are expected to cushion short-term risks.

Overall sentiment remains positive, with Malaysia’s Manufacturing PMI rising to 52.6 in April, signalling improved production and new orders.

Malaysia’s economy is expected to stay resilient, supported by the technology sector, domestic investment, and stable external demand, although caution is needed regarding global geopolitical developments.