Analysts raise Malaysia growth outlook after Q2 GDP surge

In Malaysia's second quarter of 2026, the economy expanded by a more robust-than-anticipated 6.0 percent year-on-year, leading two investment banks to revise their full-year growth forecasts upward. Hong Leong Investment Bank upgraded its 2026 GDP growth forecast from 4.7 percent to 5.3 percent, while Public Investment Bank increased its projection from 4.6 percent to 5.4 percent.

The stronger-than-expected Q2 FY26 performance, which surpassed 5.4 percent in the previous quarter, highlighted the resilience of domestic demand and improving external activity, creating a more solid foundation for growth later in the year. Both research houses stated that Q2 FY26 GDP growth slightly outperformed their 5.9 percent forecast, as well as the advance estimate and consensus median forecast of 5.8 percent released by the Statistics Department.

PublicInvest noted that growth was broadly based, driven by household spending, investment, and stronger external demand. Domestic demand continued to support growth, with household spending bolstered by steady income growth, favorable labor market conditions, and ongoing policy support. External demand played a more significant role, with exports accelerating due to continued strength in electrical and electronics, higher services exports, and a rebound in liquefied natural gas and other manufactured shipments.

Private consumption rose by 4.8 percent in Q2 FY26 from 4.7 percent in Q1 FY26, while public consumption accelerated to 7.6 percent from 4.1 percent. Public investment increased to 6.3 percent from 5.3 percent. On the supply side, manufacturing growth surged to 7.3 percent from 5.9 percent, driven mainly by export-oriented industries, especially electrical and electronics, fueled by robust demand for artificial intelligence-related products.

Services growth improved to 5.9 percent from 5.6 percent, while mining rebounded sharply to 9.2 percent from a 2.1 percent contraction in Q1 FY26. PublicInvest attributed the mining recovery to stronger natural gas production and favorable base effects, while agriculture contracted 3.7 percent from 2.6 percent growth previously due to normalizing oil palm production.

Both research firms highlighted resilience against external shocks, with first-half 2026 GDP growth reaching 5.7 percent. Looking ahead, they expect export activity and sustained domestic demand to support growth in the second half of the year, though growth in H2 2026 is likely to moderate due to the strong growth in H2 2025. Both research firms maintained expectations for Bank Negara to keep the overnight policy rate at 2.75 percent through the second half of 2026.