KUCHING: Malaysia’s Gross Domestic Product (GDP) growth is expected to be in the region of 4.3 per cent in 2026, compared with 4.6 per cent last year.
AFFIN Group’s Chief Economist, Alan Tan, said Malaysia is heading into 2026 in a position of strength, but the outlook remains optimistic and cautious due to the United States (US) policy, especially tariffs.
He said Malaysia’s exposure to external demand means changes in the US and China can flow quickly into trade performance.
“Malaysia being a very open economy, we know we are very highly reliant on external demand. Whatever happens to the US economy, to the China economy, would have negative implications on Malaysia’s trade,” he said during the AFFIN Group Market Outlook and Chinese New Year Celebration Dinner 2026 at Sheraton Hotel here recently.
Tan said domestic demand is expected to cushion the economy if exports soften.
“The country’s domestic demand is expected to cushion any unexpected export slowdown,” he said.
He said inflation is expected to stay manageable this year.
“On the inflation front, we think inflation is likely to remain manageable at 1.7 per cent this year,” he said.
Tan said Bank Negara Malaysia is expected to keep the Overnight Policy Rate (OPR) unchanged.
“Our expectation is that Bank Negara is likely to maintain OPR at the current 2.75 per cent,” he said.
He said the global rate cycle is turning, with overseas central banks cutting while Malaysia holds.
“Major countries in the US, European and central banks are all cutting interest rates,” he reiterated.
“The expectation going forward would be one where the US would continue to cut rates, cut interest rates, where Malaysia holds rates at the current level.”
He said the ringgit’s direction would be shaped by the narrowing gap between US and Malaysian interest rates.
“The narrowing of interest differential between the US rate and the Malaysian rate would favour the ringgit,” he opined.
“It will likely hover around the 4 to 4.05, possibly ending the year at 4.05.”
Tan said the US Federal Reserve may only cut rates twice in 2026, which would shape the pace of any appreciation.
“The US Federal Reserve may only cut interest rates two times in 2026,” he said.
He said the ringgit could still see swings during the year.
“In between, you may see ringgit fluctuating and even breaking the RM4 mark,” he opined.
