Malaysia’s economic growth is expected to remain resilient in the second half of 2026, although momentum is likely to moderate from the stronger pace recorded during the first half of the year. Despite evolving global headwinds and domestic changes, the country’s semiconductor exports are expected to remain robust, while data centre investments will continue to support economic activity, albeit at a slower pace. At the same time, interest rates are expected to remain stable, providing businesses with greater certainty as they plan their financing and investment strategies.

From left: Felicia Ling, Chief Economist, Hong Leong Investment Bank; Mohd Khairul Izzad Mohammed Shamsudin, CFO, KPJ Healthcare Berhad and ICAEW Fellow; and Nisa Zulkifli, Member Engagement Manager, ICAEW Malaysia, during the ICAEW Malaysia 2H26 economic outlook webinar on 15 July 2026.

The outlook was highlighted during an economic outlook webinar hosted by ICAEW Malaysia, which brought together economic and finance professionals to examine the latest developments shaping Malaysia’s business environment. During the session, Felicia Ling, Chief Economist at Hong Leong Investment Bank, shared the bank’s analysis of Malaysia’s economic momentum and highlighted the key factors expected to influence growth during the second half of the year.

Felicia Ling, Chief Economist, Hong Leong Investment Bank.

According to Hong Leong Investment Bank’s house view, Malaysia’s economic expansion remains broad-based, with the manufacturing, services and construction sectors serving as the main drivers of growth. While growth is expected to moderate in the second half of 2026, stronger-than-expected performance in the electrical and electronics (E&E) sector has led the bank to revise its 2026 GDP growth forecast upwards to 4.7 per cent, from its previous estimate of 4.5 per cent.

The manufacturing sector is expected to benefit primarily from continued strength in the E&E industry, supported by an ongoing global semiconductor upswing. Meanwhile, the services sector is being supported by resilient consumer spending and tourism activity, while the construction sector continues to benefit from infrastructure developments and investments linked to data centres.

The global semiconductor cycle is expected to remain a key source of support for Malaysia’s export performance. Following exceptionally strong results in late 2025 and early 2026, the global semiconductor market is projected to grow significantly in 2026, driven by sustained demand for artificial intelligence infrastructure and accelerated computing platforms. This global momentum has contributed to stronger Malaysian exports, with electronic integrated circuits accounting for the largest share of E&E export growth, followed by data storage products, telecommunications equipment and printed circuit boards.

The strength of Malaysia’s E&E exports is also expected to support industrial production and manufacturing activity, with the country’s export trends continuing to closely follow the global semiconductor sales cycle. As demand for AI-related technologies and advanced computing continues to expand, Malaysia’s position within the global electronics and semiconductor supply chain is expected to remain an important contributor to economic growth.

Beyond manufacturing, resilient domestic consumption is providing further support to the services sector. Household loans increased by 5.2 per cent year-on-year, while credit card transactions rose by 10.2 per cent, indicating continued consumer demand. Services sector wages also increased to RM7,592 in the first quarter of 2026, reflecting sustained income growth and helping to maintain momentum across the sector.

Another major structural development highlighted during the outlook session was the changing nature of Malaysia’s investment landscape. Approved investments reached RM431.1 billion in 2025, driven largely by strong inflows into information and communications technology projects associated with data centres. This represents a shift from an earlier investment cycle that was more heavily driven by the E&E sector towards one increasingly supported by data centre developments.

The changing investment cycle carries significant implications for businesses across different industries, particularly in areas such as capital allocation, supply chain management and workforce planning. However, the recent easing in capital imports could signal a moderation in investment activity in the quarters ahead. For finance leaders, monitoring these developments will be crucial when making decisions on capital deployment and long-term business resilience.

Mohd Khairul Izzad Mohammed Shamsudin, CFO of KPJ Healthcare Berhad and ICAEW Fellow.


Mohd Khairul Izzad Mohammed Shamsudin, CFO of KPJ Healthcare Berhad and ICAEW Fellow, noted that the data centre investment wave presents both opportunities and challenges for businesses outside the technology sector. He emphasised that resilience requires businesses to invest in areas such as supply chain diversification, maintaining adequate inventory buffers and retaining skilled employees, while maintaining disciplined capital allocation based on clear visibility of future demand.

On the fiscal front, Malaysia’s fiscal deficit is expected to record a slight slippage to 3.6 per cent of GDP, compared with the original target of 3.5 per cent. However, the increase is expected to be managed largely through operating expenditure and revenue measures rather than additional borrowing, while bond issuance remains unchanged. By the end of the first half of 2026, approximately half of the government’s planned bond issuance for the year had already been completed.

The government’s petrol and diesel subsidy allocation has also undergone a significant revision, increasing from the original RM15 billion allocation to RM40 billion for the year. The adjustment is an important factor for businesses and finance professionals to consider when assessing fiscal conditions and future economic assumptions.

For businesses planning around borrowing and financing costs, the outlook remains relatively stable. Bank Negara Malaysia is expected to maintain the Overnight Policy Rate at 2.75 per cent throughout 2026. The revised GDP growth forecast of 4.7 per cent is above the central bank’s 4.5 per cent point estimate but remains within its forecast range of 4.0 to 5.0 per cent. Meanwhile, consumer price inflation is expected to remain at around 2.0 per cent, within the central bank’s projected range of 1.5 to 2.5 per cent.

On the global front, economic uncertainties continue to evolve. In the United States, headline inflation eased to 3.5 per cent year-on-year in June after reaching a three-year high of 4.2 per cent in May, while core inflation moderated to 2.6 per cent. At the same time, artificial intelligence is increasingly influencing labour market trends, with AI-related developments emerging as a leading factor behind job losses in 2026.

Malaysia’s diversified sources of crude petroleum imports were also highlighted as an important buffer against global energy volatility. By sourcing crude oil from multiple suppliers, including Saudi Arabia, Oman, Sudan, the United Arab Emirates, Angola and the United States, Malaysia is better positioned to maintain energy supplies amid potential geopolitical disruptions and instability in key global trade routes.

Overall, Malaysia’s H2 2026 business landscape is expected to be shaped by a combination of resilient semiconductor exports, steady domestic consumption, continued data centre investments and stable interest rates. While economic growth may moderate compared with the first half of the year, the country’s diversified growth drivers provide a relatively resilient foundation. For businesses and finance leaders, understanding the shift in investment patterns, maintaining disciplined capital allocation and preparing for evolving global risks will be essential to building sustainable growth and long-term resilience.