Malaysia’s economy grew 5.3 per cent year on year in the third quarter of 2026, supported by stronger manufacturing activity and a surge in exports, although declining mining output and slower services growth moderated the expansion. The latest figures have intensified debate over whether Bank Negara Malaysia will raise interest rates as early as November, with robust economic activity and government spending measures pointing to resilient demand.
Advance estimates from the Department of Statistics Malaysia showed that gross domestic product growth slowed from 6 per cent in the second quarter. Nevertheless, growth for the first nine months of the year reached 5.5 per cent, compared with 4.8 per cent in the corresponding period of 2025. The estimates are based on available data for July and August, alongside projections for September.
Lavanya Venkateswaran, senior Asean economist at OCBC, said the third-quarter performance was consistent with the bank’s full-year growth forecast of 5.2 per cent. Bank Negara Malaysia has projected annual growth of between 4.5 and 5.5 per cent.
However, UOB expects growth to moderate further in the fourth quarter, citing a higher comparison base, transboundary haze and lingering El Niño-related disruptions affecting economic activity since October. External risks include the conflict in the Middle East and volatility in global markets. Marc Ratings chief economist Ray Choy estimated that prolonged haze could cost Malaysia as much as RM1 billion (US$245 million) in gross domestic product each month.
Manufacturing remained a key driver, with growth accelerating to 7.5 per cent in the third quarter from 7.3 per cent in the previous three months. Electrical and electronic products, optical goods, petroleum, chemicals, rubber and plastics supported the sector. Services growth eased to 5.4 per cent from 5.9 per cent, while mining and quarrying contracted 4.9 per cent after expanding 9.2 per cent in the second quarter, reflecting lower crude oil and condensate production.
Construction growth moderated to 6 per cent from 6.5 per cent, while agriculture returned to expansion, growing 1.3 per cent after contracting 3.7 per cent in the previous quarter. MBSB Research cautioned that the advance GDP estimate covered only the production side of the economy, with detailed expenditure figures, including contributions from private consumption and net exports, not yet available. Bank Negara is scheduled to release the full third-quarter GDP figures on 18 November.
External trade provided a stronger signal of economic resilience. Exports surged 54.5 per cent year on year to RM215.1 billion in September, their fastest growth since April 2021. Manufactured exports reached a record RM191.6 billion, with electrical and electronic products contributing RM45.1 billion to the overall increase. Exports of both electrical and electronic products and optical and scientific equipment recorded their highest monthly values.
Domestic exports climbed 54.7 per cent to RM162 billion, accounting for about three-quarters of total shipments. MBSB said sustained demand for electronics and optical products reflected continued investment in artificial intelligence technologies and advanced electronics, providing potential upside to its growth outlook. It nevertheless warned that prolonged geopolitical tensions, tighter trade policies and elevated energy-related inflation could weigh on performance.
Imports also rose sharply, increasing 52.7 per cent to RM181.4 billion in September. Intermediate goods imports jumped 69.6 per cent to RM92.1 billion, while capital goods imports rose 20.9 per cent to RM22.3 billion and consumer goods imports increased 18.2 per cent to RM10.9 billion. The figures point to strong demand for production inputs and equipment, although changes in nominal import values do not establish how much reflects higher prices rather than increased quantities. The monthly trade surplus widened 64.9 per cent to RM33.7 billion. Exports grew 46 per cent year on year across the third quarter.
Headline inflation eased to 1.8 per cent in September from 1.9 per cent in August, while core inflation remained at 1.7 per cent. Food inflation, however, accelerated to 1.8 per cent from 1.4 per cent, and transport inflation rose to 2.5 per cent from 2 per cent. OCBC lowered its full-year headline inflation forecast to 1.9 per cent from 2 per cent.
Despite the relatively contained inflation rate, economists expect domestic demand to remain firm heading into 2027, supported by measures in Budget 2027, including higher minimum wages, increased cash transfers and tax reductions. UOB senior economist Julia Goh and economist Loke Siew Ting expect Bank Negara to raise its overnight policy rate by 25 basis points to 3 per cent on 5 November. The rate has remained at 2.75 per cent since a cut in July 2025.
Venkateswaran said the timing was becoming a closer decision, with the central bank weighing a 25-basis-point increase in November against waiting until its meeting in early January. Strong growth provides scope for earlier tightening, she said, while contained price pressures give policymakers more time to assess the need for a change.
