KUALA LUMPUR: Malaysia’s Gross Domestic Product (GDP) growth is expected to moderate to 4.2 percent this year compared to 5.2 percent in 2025, driven by increasing domestic demand alongside remaining resilient external demand, according to MBSB Investment Bank Bhd (MBSB IB).
The investment bank said the outlook for foreign trade remained cautious as weaker global demand in a high inflation environment could dampen export momentum.
However, continued energy price shocks and potential disruptions to trade flows in West Asia could put pressure on global supply chains and increase the risk of shortages of petroleum-related products.
“In addition, tighter United States (US) trade policies could continue to affect external demand, particularly if new tariffs are imposed on semiconductor products, thus posing a downside risk to Malaysia’s electrical and electronics (E&E) exports.
“Domestically, growth prospects may also face pressure from weaker consumer and business sentiment as well as rising pricing pressures, with companies expected to pass on higher production costs to consumers,” said MBSB IB in its research note.
According to the investment bank, although domestic growth remains strong, the ringgit continues to face challenges against a strong US dollar.
At the same time, the “higher rates for longer than expected” narrative in the US is gaining traction, with demand for dollar-denominated assets increasing.
Some market players expect the likelihood of higher interest rate hikes following renewed inflation concerns in the US to potentially support the US dollar index in the short term, as supply-side inflationary pressures remain a concern.
Going forward, MBSB IB expects the local currency to strengthen throughout 2026, as the ringgit’s recent resilience reflects increased confidence in Malaysia’s macroeconomic management as well as stronger economic fundamentals.
“However, this prospect (further ringgit strengthening) faces challenges from a resurgent US dollar as market participants factor in a ‘no rate cut’ scenario for this year, driven by ongoing oil price shocks and rising geopolitical tensions in West Asia.
“Currently, we maintain our ringgit forecast for 2026, with an expected stronger average of around RM3.92 and closing at around RM3.85 by year-end,” he said.
— BERNAMA
