Malaysia anticipates solid domestic demand to drive economic growth in the second half of 2026 following the growth of 5.6% in the first half of the year, said Economy Minister Akmal Nasrullah Mohd Nasir on Aug. 1.
Household consumption and private investment would still be the main drivers of economic growth, he said, after the Association of Malaysian Economics Undergraduates (AMEU) Economics Summit 2026 in Kuala Lumpur, where the Government was continuing to maintain stable oil supply as it neared the end of the year.
“We have achieved 5.6% economic growth in 1H2026. Bank Negara Malaysia’s projection for 2026 still indicates growth between 4.0% and 5.0%. So we hope for the best in 2H2026, but we must be prepared for any possibility,” the minister said.
Consumer Spending Continues to Support Growth
The Department of Statistics Malaysia (DOSM) reported the preliminary GDP growth of 5.8% year over year for the second quarter of 2026, up from 5.4% in the first quarter. The improved performance boosted the first half figure to 5.6%.
Chief Statistician Datuk Seri Dr Mohd Uzir Mahidin said resilient domestic demand and broad-based improvements across key productive sectors continued to underpin the economy.
Household spending continued to be a major factor in the first quarter. Private final consumption expenditure rose by 4.7% compared to a year earlier, with spending on transport, restaurants and hotels, and food and non-alcoholic beverages making positive contributions to the growth, according to DOSM. A breakdown of consumption for the second quarter has not yet been available.
Domestic demand rose 5.2% in the first quarter, supported by a tight labor market and the increase in disposable income due to the second phase of the Public Service Remuneration System, additional financial assistance for civil servants and ongoing cash transfers to impoverished families under the program Sumbangan Asas Rahmah.
At the launch of the OECD Economic Surveys, Malaysia 2026 on July 28, Akmal Nasrullah said the government’s focus extends beyond headline growth.
“These are encouraging numbers, but crossing that threshold is not an end in itself. What matters is whether growth delivers better wages, more quality jobs and stronger purchasing power for Malaysians,” he said.
Labor Market, Inflation Remain Supportive
Economic conditions have also been supported by a resilient labor market and relatively moderate inflation.
Malaysia’s unemployment rate fell to 2.9%, the lowest level in a decade, while inflation remained subdued during the first quarter, helping support household purchasing power. The World Bank expects inflation to average 2% in 2026, compared with 1.4% in 2025, despite upward pressure from global energy markets.
Furthermore, government fuel subsidy programs, such as BUDI MADANI RON95 and fuel assistance under BUDI Diesel, have helped to dampen fuel price impacts on households and businesses, and have aided in the rationalization of fuel subsidies.
Government Watches Geopolitical Risks
Despite the favorable domestic outlook, the government continues to warn that external risks could weigh on the economy.
Akmal Nasrullah said some unresolved tensions in West Asia, especially over the Strait of Hormuz, “continue to be a concern given their potential impact on global energy supplies and prices.
The National Economic Action Council (MTEN) is weekly convening to track developments and coordinate actions to ensure fuel supplies are maintained, prices are kept stable, and there is minimal impact on businesses in the event of interruptions in global supply chains.
Separately, a July report by Hong Leong Investment Bank identified prolonged supply chain disruptions, a stronger U.S. dollar, political uncertainty ahead of a possible early general election and the proposed expansion of the FTSE Bursa Malaysia KLCI as potential risks to Malaysia’s economic and market outlook during the second half of 2026.
Manufacturing, Services Continue to Expand
The services sector growth picked up in the first half as it grew 5.4% compared to manufacturing growth of 7.5% in the second quarter, up from 5.9% growth in the first quarter.
Electrical and electronic products and petroleum products, chemical products, rubber and plastic products all contributed to manufacturing production, as did mining and quarrying, which bounced back.
The government kept its 2026 economic growth target of 4% to 5%, while domestic demand, private investment, and exports and technology-driven industries, such as semiconductors and data centers will continue to support the economy in the second half of the year.
