KUALA LUMPUR, May 4 — Malaysia’s gross domestic product (GDP) growth is likely to moderate to 4.2 per cent this year, compared with 5.2 per cent in 2025, driven by growing domestic demand alongside still-resilient external demand, according to MBSB Investment Bank Bhd (MBSB IB).
In a research note, the investment bank said the external trade outlook remains cautious, as weaker global demand amid elevated inflation could dampen export momentum.
However, it noted that ongoing energy price shocks and potential disruptions to trade flows in West Asia may strain global supply chains and risk shortages of petroleum-related products.
“In addition, tighter United States (US) trade policies could further weigh on external demand, particularly if new tariffs are imposed on semiconductor products, posing downside risks to Malaysia’s electrical and electronics (E&E) exports.
“On the domestic front, growth prospects may also face headwinds from softer consumer and business sentiment, as well as rising price pressures, with firms likely to pass on higher production costs to consumers,” MBSB IB said.
It noted that as domestic growth remains firm, the ringgit continues to struggle against a strong US dollar.
At the same time, the investment bank said the “higher-for-longer” narrative in the US has also gained traction, with demand for dollar-denominated assets increasing.
Some market players are expecting a higher probability of rate hikes amid renewed inflation concerns in the US, which may support the US dollar index in the short term as supply-side inflation pressures remain a concern.
Looking ahead, MBSB IB expects the local currency to strengthen through 2026, as the recent resilience in the ringgit reflects improved confidence in Malaysia’s macroeconomic management and stronger economic fundamentals.
“However, this outlook (for the ringgit to appreciate further) faces headwinds from a resurgent US dollar as market participants are increasingly pricing in a ‘no-cut’ scenario for this year, driven by persistent oil price shocks and escalating geopolitical tensions in West Asia.
“At the moment, we are keeping our 2026-ringgit projection, as we anticipate the ringgit to average stronger around RM3.92 and end the year towards RM3.85,” it added.
