HSBC raises Malaysia's GDP forecast to 5.5pct, highest since 2022

KUALA LUMPUR: Malaysia's economy could record its strongest annual growth in four years after HSBC raised its 2026 gross domestic product (GDP) forecast to 5.5 per cent from 5.2 per cent.

The bank's research division cited Malaysia's "sustained strong momentum", backed by robust domestic demand and a surge in electronics exports.

If realised, the expansion would be the fastest since 2022, when the economy rebounded by 8.7 per cent following the Covid-19 pandemic.

Setting aside the post-pandemic rebound, it would be the strongest annual growth in nine years, since 2017, when the economy expanded by about 5.9 per cent.

HSBC said the upgrade followed Malaysia's better-than-expected advance GDP growth estimate of 5.3 per cent for the third quarter.

The bank also raised its fourth-quarter growth forecast to 5.3 per cent from 4.7 per cent, suggesting that economic momentum would continue through the end of the year.

"Malaysia also beat market expectations," HSBC said in a research note on Friday, referring to the third-quarter performance.

It said Malaysia was benefiting from the artificial intelligence (AI) boom, with electronics exports growing at a record 60 per cent year-on-year on a three-month moving average basis.

HSBC identified Malaysia and Singapore as Asean's two main beneficiaries of AI-related demand, while the country's position as a net energy exporter also provided an advantage amid elevated commodity prices.

"While it is tempting to attribute Malaysia's outperformance just to trade, it is a sustained broad-based story," it said.

The bank said private consumption and investment remained key drivers of growth, supported by relatively low inflation, government subsidies and continued infrastructure development.

Consumers were also better positioned to spend than their regional peers, with Malaysia recording Asean's lowest inflation rate.

Headline inflation averaged 1.8 per cent in the first nine months of 2026, while core inflation remained around 2 per cent.

HSBC attributed the subdued inflation partly to government subsidies, particularly for RON95 petrol, which remains priced at RM1.99 per litre under the subsidised scheme, subject to a monthly quota of 300 litres.

Investment growth, meanwhile, has moderated to single digits after two consecutive years of double-digit expansion.

"The infrastructure push continues," HSBC said, although it noted that several projects were approaching their operational phase.

Malaysia has also become more selective in approving private data centre investments due to environmental and regulatory concerns.

Despite the stronger growth outlook, HSBC expects Bank Negara Malaysia to maintain the overnight policy rate (OPR) at 2.75 per cent at its Nov 5 monetary policy meeting.

The bank said Bank Negara had adopted a slightly more hawkish tone in September, but underlying inflation remained too subdued to warrant an immediate interest rate increase.

It noted that the central bank had removed the word "appropriate" from its description of the monetary policy stance, suggesting greater flexibility for future policy normalisation rather than a commitment to a fixed cycle of rate increases.

"We do not believe current underlying inflation is strong enough to trigger Bank Negara to hike imminently," HSBC said.

The bank expects Bank Negara to raise the OPR by 25 basis points to three per cent in the first quarter of 2027, describing the potential increase as a pre-emptive move towards policy normalisation rather than a response to rising inflation.

HSBC expects Malaysia's economic growth to moderate to five per cent in 2027 and 4.7 per cent in 2028.