Economic growth picks up in the second quarter of 2026

GDP growth beats expectations in Q2: According to an advance estimate, Malaysia's GDP grew 5.8% on a year-on-year basis in Q2, following 5.4% growth in the previous quarter. The figure was above market expectations.

Services and manufacturing drive the acceleration: Relative to the previous period's data, figures in Q2 improved for the manufacturing sector (+7.5% on a year-on-year basis vs +5.9% in Q1). In contrast, readings worsened for the agricultural sector (-3.7% vs +2.6% in Q1), the construction sector (+6.6% vs +7.7% in Q1) and the services sector (+5.4% vs +5.6% in Q1). On the output side, services remained resilient and continued to spearhead the expansion, while manufacturing growth accelerated to a multi-year high, supported by robust global demand for semiconductors and other AI-related goods. Accordingly, construction remained robust despite slowing, aided by data center and infrastructure projects. On the spending side, surging semiconductor exports tied to the global AI capex cycle likely helped counter disruptions related to the Iran war; merchandise exports rose by more than 50% in Q2, the strongest expansion since at least 2020. A complete expenditure-side GDP breakdown will be released mid-August.

Panelist insight: EIU analysts commented: “We expect growth to moderate […] in the second half of 2026 as the effects of export front-loading fade and businesses contend with elevated energy, freight and insurance costs arising from renewed hostilities in the Middle East. Although oil prices have fallen from their recent peaks, they remain elevated, while disruption to shipping and energy flows through the Strait of Hormuz remain substantial. Any further decline in oil prices would also reduce Malaysia’s commodity export receipts, partially offsetting the benefit from stronger export volumes.” Meanwhile, Nomura’s Euben Paracuelles and Yiru Chen said: “We maintain our 2026 GDP growth forecast of 5.2%. […] That said, we see some upside risks to our forecast, taking into account the H1 outturn and the sustained global tech uptrend, which should continue to boost electronics exports and manufacturing output. Other domestic growth drivers remain intact, including strong investment spending and private consumption. The Johor-Singapore Special Economic Zone (JS-SEZ) is likely to provide an additional boost, in our view, as approved investments are materializing, alongside progress in connectivity-boosting infrastructure projects.”

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