World Bank lifts Malaysia growth forecast to 5.1%, says AI reliance a risk

The World Bank has increased its 2026 growth forecast for Malaysia from 4.4% to 5.1%, but expresses concern over the nation's heavy reliance on AI-related investments. Lead economist Apurva Sanghi stated that over 70% of Malaysia's export growth in early 2026 was driven by demand for AI-related products. However, the bank warns that a slowdown in global AI investment could have significant consequences for the country.

Sanghi highlighted two potential impacts of a global AI slowdown: financial markets, where a drop in AI-related asset values could lead to capital outflows from emerging markets, and the real economy, where weaker global trade could result from such a slowdown. He also noted that a one-percentage-point reduction in US growth would lead to an 0.8 percentage point decline in Malaysia's growth.

The bank's chief economist for Asia, Franziska Ohnsorge, projected regional growth to moderate to 4.5% in 2026-2027, a 0.3 percentage point increase from the previous forecast. She attributed this growth to high-tech investment and exports in countries involved in the AI value chain, including China, Malaysia, the Philippines, Thailand, and Vietnam.

However, she cautioned that high energy prices are negatively affecting growth prospects across the region, contributing to higher inflation in 2026 and expected to persist into 2027.

Ohnsorge emphasized that AI-related products make up more than half of export growth in several East Asian countries and more than 70% in Malaysia, the Philippines, Thailand, and Vietnam. She warned that the region faces several downside risks to its growth outlook, including a potential slowdown in global AI activity, persistently high energy prices, and greater-than-expected damage.