GDP in Malaysia grew by 5.4% in Q1 2026, down from previous quarter

Inflation increased by 1.7% in March 2026, up from 1.3% in February – mainly driven by the transport group.

Malaysia’s economy grew by 5.4% in Q1 2026, moderating from 6.2% in the previous quarter, according to the latest Malaysian Economic Statistics Review (MESR) Series 5/2026 released by the Department of Statistics Malaysia.

In seasonally adjusted terms, the economy recorded a marginal contraction of 0.01% compared to a 1.4% growth in Q4 2025.

The report includes statistics for Q1 2026 as well as selected indicators for April 2026, alongside a special article titled Services Sector Driving Malaysia’s Economic Growth in the Thirteenth Malaysia Plan (13MP). The article highlights the services sector as a key pillar of Malaysia’s economic transformation, driven by digitalisation, technological innovation, higher productivity, and a more value-added economy.

Global economy projected to grow at slower pace

In its global outlook reference, cited in the review, the International Monetary Fund World Economic Outlook projects continued global expansion, but at a more moderate pace amid rising downside risks and prolonged uncertainty.

Global GDP is expected to grow by 3.1% in 2026 and 3.2% in 2027, lower than the 3.4% average recorded during 2024-2025 and below the long-term average of 3.7% between 2000 and 2019.

Inflation is also expected to remain elevated at 4.4% in 2026 before easing to 3.7% in 2027, as geopolitical tensions continue to weigh on global growth.

Industrial Production Index maintains growth momentum

Malaysia’s Industrial Production Index (IPI) rose by 3.1% in March 2026, unchanged from February.

The manufacturing sector led growth with 5.5%, followed by electricity at 4.9%, while mining declined by 6.5%.

On a month-on-month basis, the IPI increased sharply by 9.3% in March, recovering from a 9.2% decline in February.

On a quarterly basis, the IPI grew 4.0% in Q1 2026 compared to the same period in 2025, with manufacturing up 5.7% and electricity up 5.2%, while mining fell 2.9%.

Manufacturing sales increase to RM173.1bn

The sales value of the manufacturing sector grew by 5.3% to RM173.1bn in March 2026, an increase from 3.9% in February.

Growth was driven by electrical and electronic products (+13.3%), followed by food, beverages and tobacco (+7.8%) and non-metallic mineral products, basic metals and metal products (+3.7%).

On a month-on-month basis, sales rose 8.7% from RM159.2bn in February.

Overall, manufacturing sales for Q1 2026 reached RM501.5bn, increasing 5.5% compared to 5.8% in Q4 2025.

Services sector records steady expansion

Malaysia’s services sector grew by 8.1% year-on-year in Q1 2026, with revenue reaching RM682.0bn.

The Services Volume Index increased by 5.8% to 168 points. Wholesale and retail trade, food and beverages, and accommodation activities remained the main contributors, recording combined growth of 7.7% and revenue of RM512.3bn.

Current account surplus and investment inflows continue

Malaysia’s Current Account Balance (CAB) recorded a surplus of RM15.2bn in Q1 2026, supported by a strong goods account and improving services account.

Foreign Direct Investment (FDI) registered a net inflow of RM22.8bn in Q1 2026 (Q4 2025: RM26.6bn), driven by inflows into debt instruments and equity and share investment funds.

Investment was mainly channelled into the services sector, particularly information and communication activities.

Direct Investment Abroad (DIA) recorded a net outflow of RM8.1bn in Q1 2026 (Q4 2025: RM4.1bn), reflecting increased overseas investment in services and mining and quarrying sectors.

Trade performance remains strong

Malaysia’s external trade rose 9.3% year-on-year in March 2026 to RM273.0bn. Exports increased by 8.3% to RM148.8bn, while imports rose 10.4% to RM124.2bn.

For Q1 2026, total trade grew 10.4% year-on-year, with exports up 12.7% and imports rising 7.7%.

The trade balance increased by 54.0% compared to Q1 2025.

For April 2026, total trade surged 28.6% to RM336.7bn from RM261.9bn, driven by strong export performance.

Inflation rises in March and April 2026

Malaysia’s inflation increased by 1.7% in March 2026, up from 1.3% in February. The rise was mainly driven by the transport group.

In Q1 2026, inflation stood at 1.6%, compared to 1.3% in Q4 2025, driven by higher prices in personal care, education, and alcoholic beverages and tobacco groups.

As for April 2026, inflation rose further to 1.9%.

Producer Price Index records recovery

The Producer Price Index (PPI) increased by 1.1% in March 2026, after a 3.4% decline in February, marking the first increase since March 2025.

The increase was driven by higher output prices in mining, particularly crude petroleum extraction, as well as utilities, including water supply and electricity and gas.

On a month-on-month basis, the PPI rose 4.1% in March.

However, on a quarterly basis, the PPI still contracted by 1.7% in Q1 2026 due to declines in agriculture and manufacturing.

In April 2026, the PPI recorded a stronger increase of 5.4%, the highest since August 2022.

Labour market remains stable

Malaysia’s labour market remained stable in March 2026, with the labour force increasing by 0.3% to 17.23mn. Employment rose to 16.73mn, while the unemployment rate declined slightly to 2.9%.

As for Labour Force Participation Rate (LFPR), it stood at 70.9%. The number of jobs increased by 1.8% year-on-year to 9.23mn in Q1 2026.

Leading Index points to steady outlook

Malaysia’s Leading Index (PI) rose 0.5% year-on-year in March 2026 to 113.3 points, supported by a 32.3% increase in approved housing units.

However, weaker semiconductor imports limited overall gains.

On a month-on-month basis, the index declined by 0.1%, mainly due to lower real imports of precious base metals and other non-ferrous metals.

DOSM noted that while the index remains below the long-term trend threshold, domestic demand and investment activity continue to support economic resilience amid global uncertainty.

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