Malaysian Finance Ministry Cautions on 2026 Growth Amid Global Uncertainty

By Ying Xian Wong

KUALA LUMPUR, Malaysia--Malaysia's economy faces challenges next year, the finance ministry said, as it issued a growth forecast reflecting heightened global uncertainty.

"We live in post-normal times, where upheavals strike not in sequence but all at once. A simultaneity of disruptions that tests nations and societies alike," Finance Minister Anwar Ibrahim said.

Malaysia had previously cut the forecast for this year after U.S. President Trump announced tariffs on dozens of trading partners. Prior to that, officials had seen scope for growth as high as 5.5%.

Next year, the ministry sees the economy expanding at between 4.0% and 4.5%. That compares with the 4.0% to 4.8% projected for this year.

Consumer inflation is tipped to come in lower than previously expected, and remain in check next year, as supply-chain improvements and productivity help contain price pressures, the report showed.

After a relatively solid first half of 2025, annual growth is likely to come in on target, the ministry said in its annual outlook report released Friday.

Still, even at the top end of the range, that would mark a slowdown from 5.1% in 2024.

Intensifying geopolitical tensions, climate risks and financial market instability continue to challenge the global economy, the finance minister said.

While some clarity on U.S. tariff policies may offer relief, the lingering risk of sector-specific and retaliatory trade measures could still disrupt global trade flows, he added.

Despite the headwinds, Malaysia's solid economic fundamentals should help buffer against external shocks, he said.

Lending support in 2026 is domestic demand, which is expected to stay resilient, the ministry said. Targeted fiscal support, investment and tourism offer tailwinds too, it added.

The country's latest budget showed that it has stuck to fiscal consolidation, as widely expected.

"Rebuilding our fiscal buffers is indispensable, more than ever, as economic shocks become more frequent and more severe in today's volatile global climate," Anwar said.

Malaysia announced a 2026 federal budget of 419.2 billion ringgit, equivalent to $99.47 billion, and lowered its fiscal deficit target to 3.5% of gross domestic product from 3.8% in 2025.

The budget included measures to broaden fiscal revenue, reprioritize spending and strengthen governance.

Government revenue is projected to rise to 343.1 billion ringgit in 2026 from 334.1 billion ringgit in 2025, in part thanks to improved tax collection and an expanded sales tax.

Operating expenditure is expected to increase to 338.2 billion ringgit, while development spending is set at 81 billion ringgit, the ministry said.

Write to Ying Xian Wong at yingxian.wong@wsj.com

(END) Dow Jones Newswires

October 10, 2025 04:14 ET (08:14 GMT)