Affin Bank Bhd chief economist Alan Tan Chew Leong (Photos by Patrick Goh/The Edge)
KUALA LUMPUR (Nov 27): Growth is still expected for Malaysia’s economy in 2026, albeit at a slower pace, as key indicators do not point to any imminent recession in the near term despite persistent global uncertainties, according to economists.
Affin Bank Bhd (KL:AFFIN) chief economist Alan Tan Chew Leong said while global risks have intensified — particularly arising from the US economy, geopolitical tensions and the evolving tariff landscape, there remains “no major signs” of the world heading into a deep economic slowdown.
“If PMI [purchasing managers’ index] readings fall below the 50-point expansion threshold for a sustained period, that signals manufacturers are cutting production and export guidance has weakened — which could point towards a global economic slowdown or even a recession,” he said at the National Economic Outlook Conference organised by the Malaysian Institute of Economic Research (MIER) on Thursday.
PMI is a key gauge to monitor recession risks, as it reflects real-time sentiment in the manufacturing sector, Tan noted.
While geopolitical tensions, tariff changes and external uncertainties continue to cloud the global outlook, he stressed that global monetary authorities still hold enough buffers to provide countercyclical support.
At home, Tan said economic growth hinges on its diversified export base and resilient domestic demand, while construction activity is being lifted by data centre investments.
He added that manufacturing activity remains stable and the tourism sector is expected to strengthen ahead of Visit Malaysia Year 2026.
Overall, most economists attending the conference projected Malaysia’s economy to expand between 4.3% and 4.7% year-on-year in 2026. For the first nine months of 2025, the economy grew 4.7%.
World Bank lead economist for Malaysia Dr Apurva Sanghi said the coming year will be the “real test” of whether domestic demand can continue to anchor the country’s growth, with Trump’s tariff play expected to take effect by next year, once both countries ratify the deal.
Under the deal signed between Malaysia and the US on Oct 26, the US maintains a 19% tariff on Malaysian goods, while 1,711 product lines will receive either full exemptions or lower tariff rates. The full list will be finalised once both governments complete the legal ratification process, expected within 60 days after the exchange of documents.
“While headline tariffs may be around 19%, the effective rate is closer to 12%–13%, which is lower than many regional economies. In that sense, Malaysia remains comparatively less affected,” Affin Bank’s Tan said.
Prominent economist Professor Jomo Kwame Sundaram, speaking at the same event, cautioned that Malaysia must prepare for a more unpredictable external environment — particularly under the US’ increasingly transactional and zero-sum trade posture.
Jomo, who is Khazanah Research Institute’s research adviser, noted that if the US Supreme Court overturns Trump’s tariff measures, many of the existing bilateral arrangements, including the Agreement on Reciprocal Trade (ART), would still stand.
While describing the “details of the ART agreement as very bad”, Jomo said Malaysia should “be humble and learn” from how Mexico and Canada managed their negotiations to strengthen trade, supply chains and security cooperation with the US.
He then urged developing nations to pursue greater cooperation among themselves, including revisiting the role of the Non-Aligned Movement and exploring new regional monetary and financial mechanisms such as the mooted Asian Monetary Fund.
He added that failures in multilateralism are often due to “deliberate sabotage”, and that smaller economies like Malaysia must explore collective arrangements to navigate great-power tensions.
