DBS has set a 4.2% growth forecast for Malaysia in 2027 and maintained its 4% estimate for 2026, but cautioned about the external outlook, especially US tariffs on the semiconductor sector.
The bank also kept its 2026 inflation target for the country at 2.0% through 2027, with an anticipated 25-basis-point overnight policy rate cut by Bank Negara Malaysia in the first half of 2026.
DBS analytics manager Han Teng Chua flagged semiconductor tariffs as a key downside risk, describing the recent talks about US-Malaysia zero-tariff agreement as “far-fetched”.
“We know that Malaysia is in talks with the US on potentially zero chip tariffs, but that's probably quite far-fetched,” he said during a Q&A session of DBS' Separate Paths: Economic Outlook and Market Strategy for 2026 webinar.
"Malaysia's dynamics is that there's a sense of cautious optimism. I think domestically, the economy is doing well in terms of private consumption, an upward investment cycle in terms of FDI (foreign direct investment) going to Johor, Singapore, the SEZ," he added, referring to the Johor-Singapore Special Economic Zone.
"On the downside, we should be cautious about the external outlook and the semiconductor tariffs that would place a big hit on Malaysia if they were imposed, although we have to really see how the conditions might play out," said Han.
On the other hand, DBS expects the global macro landscape to shift towards a more neutral monetary policy setting in 2026 as the US Federal Reserve, European Central Bank and Bank of Japan gradually normalise policy.
However, it cautioned that the broad recovery may remain uneven, with risks of a K-shaped global economy and the possibility of inflation flaring up again if policy easing proves premature.
On currencies, DBS projects a weaker US dollar in 2026, though it emphasised that the path lower will likely be volatile.
See also: Malaysia to keep policy rate steady, defying regional easing as its economy holds up
Concerns over US fiscal deficits, potential threats to the Fed’s policy independence and renewed trade frictions could fuel bouts of risk aversion that temporarily support the dollar.
Meanwhile, DBS China economist Mo Ji said the Chinese economy is "expected to continue its transition from the old, property-led model towards high-end manufacturing and technology-driven growth".
She also noted, while no major stimulus measures are expected, some fiscal support is likely, particularly to encourage innovation and investment in advanced manufacturing.
For India, DBS highlighted continued strength in the domestic economy, with gross domestic product growth projected at 7.2% for the current fiscal year and 6.5% for the next, driven by new economic sectors, including data centres, semiconductors, and electronics manufacturing, alongside efforts to diversify the industrial base.
