KUALA LUMPUR: Malaysia's economy is expected to continue expanding into 2026, albeit at a slightly slower pace, with economists saying key indicators show no immediate signs of a recession despite persistent global uncertainties.
Affin Bank chief economist Alan Tan Chew Leong said, while global risks, including pressures from the US economy, geopolitical tensions, and shifting trade tariffs, have intensified, traditional early-warning signals do not point to an imminent global or domestic recession.
One of the most important gauges of recession risk, the Purchasing Managers' Index (PMI), remains above the 50-point expansion threshold, he said at the National Economic Outlook Conference organised by the Malaysian Institute of Economic Research (MIER) last week.
Tan explained that sustained PMI readings below 50 signal contraction in manufacturing and weaker export guidance, which could indicate a global slowdown or recession.
PMI, reflecting real-time sentiment in the manufacturing sector, remains a reliable early indicator of potential economic stress.
He added that major central banks still have ample policy space to stabilise economies if growth softens, providing a buffer against a recessionary spiral.
For Malaysia, recession risks are mitigated by a diversified export base, steady domestic demand, and rising construction activity, particularly from data centre investments. Manufacturing remains resilient, while the tourism sector is expected to gain momentum ahead of Visit Malaysia Year 2026.
Overall, economists forecast Malaysia's GDP growth to range between 4.3 per cent and 4.7 per cent in 2026, following a 4.7 per cent expansion in the first nine months of 2025.
Sunway University economics professor Dr Yeah Kim Leng told Business Times that while Malaysia is on track to avoid a slowdown in 2025, the global economy remains fragile due to high debt levels, climate risks, and geopolitical tensions.
"Malaysia is equipped to weather the risks with ongoing fiscal strengthening efforts and initiatives to improve household income and strengthen investor confidence," he said.
"The 4.3 per cent to 4.7 per cent forecast for 2026 is realistic but we should be ready for a bumpy ride as uncertainties remain elevated."
Meanwhile, Dr Apurva Sanghi, World Bank lead economist for Malaysia, said 2026 will be the "real test" of whether domestic demand can continue anchoring growth, particularly as the revised US tariff framework comes into play.
Under the Malaysia–US deal signed on October 26, the US will maintain a 19 per cent tariff on Malaysian goods, though 1,711 product lines are set to receive reduced or zero tariffs once legal ratification is completed, expected within 60 days.
A fund manager told Business Times that while the headline tariff is 19 per cent, the effective tariff burden for Malaysian exporters is closer to 12–13 per cent.
"This lower rate reflects preferential trade agreements, exemptions, and adjustments in applied duties. Compared with other regional exporters facing higher effective tariffs, Malaysia's exporters enjoy a competitive edge, helping cushion the impact of trade tensions," he said.
Source: https://www.nst.com.my/business/economy/2025/12/1327426/global-recession-unlikely-steady-growth-malaysia-expected
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