KUALA LUMPUR: Domestic demand is expected to increasingly anchor growth in the second half of the year following the advance estimate growth of 5.8 per cent for the second quarter.
Kenanga Research said growth in the second half will be supported by services activity, artificial intelligence-related investment, data centre development, continued implementation of approved investments, rising household incomes and low unemployment.
The firm maintained its gross domestic product (GDP) forecast of between 4.5 per cent and 5.0 per cent this year, with a bias toward the upper end of the range following stronger first-half growth.
“We still expect growth to moderate in the second half as temporary tailwinds fade, including the unwinding of front-loading activity, softer trade momentum and less favourable base effects.
“Overall, we remain cautiously optimistic, with resilient domestic demand expected to offset part of the persistent external headwinds,” it said in a note.
The firm also expects Bank Negara Malaysia to keep the overnight policy rate unchanged through 2026, so monetary conditions should remain supportive of consumption and investment.
However, the firm noted that external risks continue to dominate the outlook.
The fragile US-Iran ceasefire leaves oil prices exposed to renewed volatility, posing risks to inflation and external demand, it said.
“Uncertainty over US tariff policy adds downside risk to exports, while the normalisation of front-loading activity is likely to soften trade and manufacturing momentum in 2H26.”
It added that El Niño-related weather disruptions also pose risks to agricultural output and food prices.
Domestically, Kenanga Research said risks remain manageable but have edged higher amid evolving political developments.