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Strong domestic demand and exports supported Malaysia’s latest economic expansion, while industrial activity, services, and trade also recorded solid growth.
Malaysia’s economy continued to expand in the second quarter of 2026, with Gross Domestic Product (GDP) growing 6.0% year-on-year, according to the Department of Statistics, Malaysia (DOSM).
The latest figures were published in the Malaysian Economic Statistics Review (MESR), Volume 8/2026, released on 28 August 2026. The review highlights developments across Malaysia’s major economic activities and provides an overview of the country’s economic trajectory amid changing domestic and global conditions.
It also features an article titled Gross Fixed Capital Formation and Economic Growth in Malaysia: Long-run and Short-run Dynamics, examining the long-run and short-run relationship between Gross Fixed Capital Formation (GFCF) and GDP.
The analysis covers adjustment dynamics and granger causality using Malaysia’s economic data from 1956 to 2025.
Developing Asia outlook remains fragile
The latest economic performance comes against a fragile global backdrop.
According to the Asian Development Outlook July 2026, growth in Developing Asia and the Pacific (DAP) is projected at 4.9% in 2026. This is lower than the 5.1% forecast made in April and the 5.5% growth recorded in 2025.
The downward revision reflects higher production costs and weaker economic activity arising from energy market disruptions and supply chain shocks linked to the Middle East conflict.
For 2027, growth in DAP is projected at 5.1%, assuming these pressures gradually ease. Against this backdrop, Malaysia’s economy maintained its growth momentum in Q2 2026.
GDP grew 6.0% in the quarter, supported by sustained domestic demand and strong export performance. On a quarter-on-quarter basis, the economy grew 2.5%, following a marginal decline of 0.03% in the preceding quarter. All economic sectors recorded positive growth except agriculture, while the services sector continued to strengthen overall economic expansion.
Industrial production rises 6.5%
The expansion in economic activity was also reflected in Malaysia’s industrial performance.
The Industrial Production Index (IPI) increased 6.5% year-on-year in June 2026, driven mainly by the manufacturing and electricity sectors. Manufacturing output grew 7.3%, while electricity expanded 6.7%. The mining sector also recorded growth of 3.1%. On a month-on-month basis, the IPI increased 5.5%. For Q2 2026, industrial production growth accelerated to 7.7%, an increase from 4.0% in the preceding quarter, pointing to stronger industrial momentum.
Manufacturing sales grow 9.8%
Within the industrial sector, manufacturing continued to support economic activity.
Manufacturing sales value increased 9.8% year-on-year in June 2026 to RM177bn, increase from 8.9% growth in May. The increase was primarily driven by the Electrical & Electronics (E&E) products sub-sector, which recorded growth of 18.7%. On a month-on-month basis, manufacturing sales increased 2.5% from RM172.7bn in May. For the second quarter, total manufacturing sales reached RM524.8bn, representing stronger growth of 9.3% compared with 5.5% in Q1 2026.
Services sector continues to support growth
The services sector remained a key contributor to Malaysia’s economic activity.
Services revenue increased 11.2% year-on-year in Q2 2026 to RM714.7bn. At the same time, the Volume Index of Services rose 5.9% to 170.1 points. On a quarter-on-quarter basis, services revenue increased 4.9%, while the Volume Index of Services grew 1.3%. The expansion was supported by positive growth across all major services segments.
Malaysia’s total trade rises 44.7%
The strength of domestic economic activity was accompanied by continued momentum in Malaysia’s external trade.
Total trade increased 44.7% year-on-year in June 2026 to RM340.9bn. Exports rose 45.4% to RM177.9bn, while imports increased 43.9% to RM163.0bn. As a result, Malaysia’s trade surplus expanded 64.9% to RM14.9bn. On a month-on-month basis, imports and total trade increased, while exports and the trade surplus declined.
Nevertheless, strong export and import growth in July 2026 indicated that positive trade momentum remained intact.
Current account remains in surplus
Malaysia’s favourable external position was also reflected in its Current Account Balance (CAB). The country recorded a CAB surplus of RM10.8 billion in Q2 2026, compared with RM15.2 billion in the preceding quarter. The surplus was supported by net exports of the Goods Account.
Meanwhile, Foreign Direct Investment (FDI) recorded a net inflow of RM7.4bn, a decrease from RM22.8bn in Q1 2026. Direct Investment Abroad (DIA) recorded a net outflow of RM7.0bn, compared with RM8.1bn in the preceding quarter.
Inflation remains relatively contained
Amid continued economic expansion, price developments remained relatively contained.
Malaysia’s inflation moderated to 1.9% in June 2026 from 2.0% in May. The Consumer Price Index increased to 137.1 points in June, compared with 134.5 points a year earlier. The increase was mainly driven by the transport group.
At the same time, inflationary pressures eased in several key groups, including food & beverages, housing, water, electricity, gas & other fuels, as well as restaurant & accommodation services.
Inflation remained at 1.8% in July 2026, suggesting that overall consumer price pressures continued to be relatively contained.
Producer prices continue to rise
At the producer level, Malaysia’s Producer Price Index (PPI) increased 9.2% year-on-year in June 2026, accelerating from 7.8% in May.
Growth was recorded across all sectors.
The mining sector recorded the strongest increase at 29.0%, driven mainly by a 40.7% rise in the Extraction of Crude Petroleum index. On a month-on-month basis, the PPI for local production increased 0.6%, following a 1.1% increase in May. PPI growth strengthened further to 9.7% in July 2026, pointing to continued movement in producer prices.
Labour market remains stable
DOSM also reported that Malaysia’s labour market remained stable amid the broader economic expansion.
The labour force increased 1.0% year-on-year to 17.28mn persons in Q2 2026, while the Labour Force Participation Rate (LFPR) remained at 70.9%. The number of employed persons increased 1.1% to 16.77mn, while the unemployment rate remained unchanged at 3.0%.
On the demand side, the total number of jobs increased 1.7% year-on-year to 9.25mn. The figures point to continued labour demand alongside the expansion in economic activity.
Leading Index points to optimistic outlook
Looking ahead, Malaysia’s Leading Index (LI) maintained its upward trajectory. The LI increased 1.3% year-on-year in June 2026 to 114.8 points, compared with 113.3 points in the corresponding month a year earlier. On a month-on-month basis, the LI increased marginally by 0.02%.
While the long-term smoothed trend of the LI remained below 100.0 points, its continued improvement points to an optimistic near-term outlook. DOSM said the outlook was influenced by domestic demand and investment activity.
Overall, Malaysia’s economic performance in Q2 2026 remained favourable, with sustained domestic activity, investment, strong external trade, and expansion across key economic sectors supporting growth.
Infographic / DOSM
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