HSBC upgrades Malaysia's GDP growth forecast to 5.5% for 2026

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HSBC upgrades Malaysia's 2026 GDP forecast

Highlights

HSBC raised its forecast for Malaysia's GDP growth in 2026 to 5.5% from 5.2%, citing strong domestic demand and better-than-expected trade performance.
Malaysia's inflation remains low, averaging 1.8% a year, while RON95 is priced at RM1.99 per litre with subsidies and a monthly quota of 300 litres.
Bank Negara Malaysia has kept the overnight policy rate at 2.75% since September 2025, with a potential 25-basis-point hike in the first quarter of 2027.

This article was translated from the original. Read the original version by our correspondent here.

Growth drivers and HSBC's forecast revision

As reported by The Edge Malaysia, HSBC raised its forecast for Malaysia's economic growth in 2026 to 5.5% from 5.2%, according to a HSBC Global Investment Research note.

Asean Senior Economist Yun Liu said Malaysia's growth engine showed few signs of slowing, as resilient domestic demand and better-than-expected trade results sustained momentum. She said more details from the expenditure breakdown of gross domestic product would be available in the final release of third-quarter GDP on 18 Nov, but private consumption and investment continued to be the main pillars of growth.

According to her, consumers in Malaysia are better placed to spend than their regional peers, as the country has the region's lowest inflation, supported by still-generous subsidies. HSBC said Malaysia's headline inflation averaged 1.8% year on year, while core inflation remained moderate at around 2% year on year.

Low inflation and interest rate outlook

Yun Liu said the continued provision of subsidies, particularly for RON95, helped contain price pressures even as economic growth remained strong. Malaysians continue to enjoy RON95 at RM1.99 per litre, with a monthly quota of 300 litres for each eligible consumer.

She acknowledged, however, concerns that strong growth could drive local inflation higher. But she said Asia's AI outperformers, including Taiwan, South Korea, Singapore and Malaysia, had so far not seen broad-based increases in inflation.

On the overnight policy rate, she said Bank Negara Malaysia was likely to normalise the rate not in response to inflation, but as a precautionary measure. BNM has kept its policy rate at 2.75% since September 2025, and HSBC does not expect a hike in November, but sees the possibility of a more hawkish signal at next week's meeting, ahead of a 25-basis-point hike in the first quarter of 2027.

In our earlier article on BNM's policy signals and market expectations, we highlighted how Middle East geopolitical tensions and persistently high energy prices were affecting the inflation outlook and scope for interest rate adjustments. We also discussed changes in BNM's guidance, which were seen as opening the door to policy tightening, as markets began assessing the likelihood of a rate hike within six months and monitoring ringgit stability and bond market volatility.

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