KUALA LUMPUR: Malaysia’s economy could post its strongest annual growth in four years after HSBC raised its 2026 gross domestic product (GDP) forecast to 5.5 per cent from 5.2 per cent, a revision that economists say is plausible.
HSBC cited Malaysia’s sustained strong momentum, backed by robust domestic demand and a surge in electronics exports.
If realised, the expansion would be the fastest since 2022, when the economy rebounded by 8.7 per cent following the Covid-19 pandemic.
Setting aside the post-pandemic rebound, it would be the strongest annual growth in nine years, since 2017, when the economy expanded by about 5.9 per cent.
HSBC said the upgrade followed Malaysia’s better-than-expected advance GDP growth estimate of 5.3 per cent for the third quarter (Q3).
The bank also raised its Q4 growth forecast to 5.3 per cent from 4.7 per cent, suggesting that economic momentum would continue through the end of the year.
Economist Geoffrey Williams said a growth of 5.5 per cent or more was realistic and should continue into next year.
Sunway University economics professor Dr Yeah Kim Leng described the forecast as plausible and well-grounded, although it sits above consensus.
“The economy grew 5.5 per cent across the first three quarters, and with momentum holding into Q4 underpinned by resilient private consumption and investment, low inflation and a record electronics export surge, there is a strong chance the full-year outturn will indeed reach 5.5 per cent,” Yeah said.
However, he cautioned that base effects and a normalisation of external demand in the final quarter could temper this outlook slightly.
Additionally, Bank Muamalat Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said 5.5 per cent was achievable, considering the strength of the Malaysian economy in the first nine months of the year.
“Malaysia also beat market expectations,” HSBC added, referring to the Q3 performance.
It said Malaysia was benefiting from the artificial intelligence (AI) boom, with electronics exports growing at a record 60 per cent year-on-year on a three-month moving average basis.
HSBC identified Malaysia and Singapore as Asean’s two main beneficiaries of AI-related demand, while the country’s position as a net energy exporter also provided an advantage amid elevated commodity prices.
“While it is tempting to attribute Malaysia’s outperformance just to trade, it is a sustained broad-based story,” it said.
The bank said private consumption and investment remained key drivers of growth, supported by relatively low inflation, government subsidies and continued infrastructure development.
Consumers were also better positioned to spend than their regional peers, with Malaysia recording Asean’s lowest inflation rate.
Headline inflation averaged 1.8 per cent in the first nine months of 2026, while core inflation remained around 2 per cent.
HSBC attributed the subdued inflation partly to government subsidies, particularly for RON95 petrol, which remains priced at RM1.99 per litre under the subsidised scheme, subject to a monthly quota of 300 litres.
Investment growth, meanwhile, has moderated to single digits after two consecutive years of double-digit expansion.
“The infrastructure push continues,” HSBC said, although it noted that several projects were approaching their operational phase.
Malaysia has also become more selective in approving private data centre investments due to environmental and regulatory concerns.
Yeah said slower investment would soften growth rather than cause a sharp slowdown.
Investment accounts for a significant but not overly dominant share of the economy at 23 per cent of GDP, of which private investment contributed 19 percentage points in the first half of 2026.
Despite the stronger growth outlook, HSBC expects Bank Negara Malaysia to maintain the overnight policy rate (OPR) at 2.75 per cent at its Nov 5 monetary policy meeting.
HSBC said Bank Negara had adopted a slightly more hawkish tone in September, but underlying inflation remained too subdued to warrant an immediate interest rate increase.
It noted that the central bank had removed the word “appropriate” from its description of the monetary policy stance, suggesting greater flexibility for future policy normalisation rather than a commitment to a fixed cycle of rate increases.
“We do not believe current underlying inflation is strong enough to trigger Bank Negara to hike imminently,” HSBC said.
Williams agreed that Bank Negara would likely hold rates, while Yeah said a hold was expected given contained inflation and firm growth momentum supporting a steady stance, although the meeting could deliver hawkish signals.
However, Afzanizam said a rate hike in November was possible, as Bank Negara may want to normalise its monetary policy stance in line with higher economic growth and a stable inflation environment.
“Last year, when Bank Negara cut OPR rates, it was done on a basis to pre-empt any potential slowdown following the US tariff shocks.
“Meaning, clearly, the current growth trajectory suggests such policy support needs to be adjusted by removing some of the policy accommodation,” he added.
HSBC expects Bank Negara to raise the OPR by 25 basis points to three per cent in the first quarter of 2027, describing the potential increase as a pre-emptive move towards policy normalisation rather than a response to rising inflation.
Yeah said such a pre-emptive move was expected early next year, but remained data-dependent, particularly on domestic core inflation and growth momentum.
Meanwhile, Afzanizam said the strong performance in the first nine months would result in a higher base for 2026, which could cause growth to moderate in 2027.
HSBC expects Malaysia’s economic growth to moderate to five per cent in 2027 and 4.7 per cent in 2028.