KUCHING: Malaysia is heading into 2026 with tariff risks firmly in focus and a projected 32 per cent contraction in net exports, amid signs of slowing global growth.
Bank Muamalat Malaysia Berhad chief economist Dr Mohd Afzanizam Abdul Rashid said the impact of US tariffs next year is expected to be full bust, even as the federal government projects GDP growth of around 4 per cent to 4.5 per cent for 2026.
“That is the same range as the estimate for this year. The trajectory is actually slowing.
“One forecast number that struck me was the contraction in the net exports, 32 per cent. That’s a lot,” he said.
He said this during his session at the 2026 Sarawak Budget Conference at the Borneo Convention Centre Kuching on Tuesday.
Linking the outlook to anticipated tariff implementation, Afzanizam said the US economy is already showing signs of strain.
“In a nutshell, the economy is struggling,” he said.
He said business and consumer sentiment in the US remains weak, pointing to the Institute for Supply Management (ISM) index for the manufacturing sector, where the 50-point line marks expansion.
He noted that the November reading stood at 48.2 and has remained below 50 for several months.
On the consumer side, Afzanizam said confidence was also lackluster, with the November reading hovering around 88 points, adding that consumer spending accounts for about 70 per cent of the US economy.
He said the US remains the world’s largest economy at least at the current juncture, and stressed that Malaysia and Sarawak need to be mindful of how closely their growth tracks developments there.
“If you look at the economic growth between the US and Malaysia, the correlation is about around 80 per cent, positive 80 per cent,” he said.
“So what it means is that what happens in the US is going to be transmitted to us. That said, the old adage, ‘when the US loses, everyone catches a cold’, remains valid,” he said.
Afzanizam said these dynamics will be among the key factors shaping economic conditions and influencing how budgets are positioned at both the federal and state levels.
He also pointed to developments in Europe, noting that rising defence spending there could generate positive spillovers for economic activity.
He said this could lift demand for machinery, equipment and raw materials, and noted that Malaysia-European Union free trade agreement discussions have resumed after being halted around 2012.
On monetary conditions, Afzanizam said heightened uncertainty has prompted many central banks to cut interest rates to support growth, adding that Bank Negara Malaysia reduced the overnight policy rate (OPR) in July.
“The consensus among economists is that the OPR may stay put throughout next year, with 4 per cent growth used as a yardstick and the OPR at 2.7 per cent,” he said.
“Falling interest rates often signal an economy that needs help and direct intervention. The prospect for growth looks challenging and geopolitical factors are also in play,” he said.
