Growth momentum expected to moderate despite 3Q optimism

By the Editorial Team · Tuesday, October 20, 2026

Malaysia’s GDP grew 5.3% year-on-year in the third quarter of 2026, surpassing forecasts despite signs of slowing quarter-on-quarter momentum in domestic demand and services. This mixed growth outlook has led analysts to predict Bank Negara Malaysia will likely keep interest rates steady in the near term, though rising inflation risks and stronger GDP performance could prompt a rate hike later in the year.

Malaysia’s economic growth showed mixed signals in the third quarter of 2026 despite registering a stronger-than-expected advance estimate, signaling a potential slowdown in momentum going forward. Preliminary data indicated gross domestic product (GDP) increased by 5.3% year-on-year (y-o-y) in 3Q26, surpassing forecasts, though quarter-on-quarter (q-o-q) growth is estimated to have moderated.

CIMB Research projected that seasonally adjusted GDP growth slowed to approximately 1.3% q-o-q in 3Q26, down from 2.5% in the previous quarter. This suggests a softening in domestic demand, with services growth estimated to have eased to 1.1% q-o-q from 2% in 2Q26, below the historical quarterly average of 1.7% between mid-2025 and late 2025. Manufacturing output growth also decelerated to an estimated 1.7% q-o-q from 3.4%, despite year-on-year gains accelerating.

The research firm highlighted that the moderation aligns broadly with its expectations, though it emphasized the slowdown is occurring more gradually than initially anticipated. The easing momentum points to a tempering in consumer and domestic activity, even as headline GDP growth outperformed both CIMB Research’s 4.9% forecast and the market consensus of 5.1%. Key contributors to the stronger GDP figure included robust external demand for manufactured goods, a rebound in palm oil production, and increased import duties. Manufacturing expanded 7.5% y-o-y, while the services sector grew 5.4%.

In response to these developments, CIMB Research maintained its view that Bank Negara Malaysia (BNM) is likely to keep the overnight policy rate (OPR) steady at 2.75% in its November meeting. The research group cited signs of moderating domestic activity and contained inflation as reasons to hold rates. However, it cautioned that Budget 2027’s provisions for income and wage support measures could stoke inflationary pressures in the latter half of 2027, potentially increasing the risk of future rate hikes.

Similarly, TA Research noted that the stronger-than-expected GDP performance posed upside risks to its full-year growth forecast, which currently stands at 5.1%. Pending the release of the final 3Q26 GDP data scheduled for November 18, TA Research retained its forecast but acknowledged that maintaining a fourth-quarter growth assumption of 4.6% would lift full-year expansion closer to 5.3%, at the upper boundary of the Finance Ministry’s target.

TA Research also pointed to rising inflation risks and the recent growth performance as factors that may prompt BNM to consider a 25-basis-point increase in the OPR to 3% from its current 2.75%. Nonetheless, the research firm underscored that an interest rate increase would depend on persistent inflationary trends and whether growth momentum can be sustained. The possibility of a policy adjustment at BNM’s upcoming Monetary Policy Committee meeting on November 5 has therefore increased but will hinge on forthcoming inflation data and broader economic developments.

This article was reported by synthesizing coverage from multiple independent news outlets to present a balanced, unbiased account. Read about our editorial standards. Spotted an error? Let us know.