KUALA LUMPUR: Malaysia’s economy is expected to grow by 5.1% this year and 4.7% in 2027, largely driven by external demand from artificial intelligence (AI)-related investment and exports, according to the World Bank.
Lead economist for Malaysia Apurva Sanghi said the revision is 0.7% percentage points higher from its previous April forecast and above regional growth of 4.5%.
“Malaysia has recorded the strongest AI-driven export growth in the region, with more than 70% of the country’s overall export growth in early 2026 attributed to increased demand for AI related products.
“So, Malaysia is really riding the AI wave, and while it sounds good, the corollary is that growth excluding AI-related goods has been weak, raising concerns about the economy’s dependence on the AI sector. A slowdown in global AI investment could significantly impact on Malaysia,” he said during a media briefing on October 2026 East Asia and Pacific Economic (EAP) Update today.
He cautioned that a potential reversal in the global AI boom is a key downside risk to Malaysia’s economic outlook, adding that fully realising the technology’s potential would require faster adoption and broader diffusion.
“Malaysia still lags in equipping its population with strong foundational skills, as highlighted in previous Malaysia Economic Monitor reports and other studies,” he said.
Apurva said a sharp reversal could affect Malaysia through two channels: financial channels, wherein the repricing of AI assets could trigger capital outflows from emerging markets, and the real economy channels, through a slowdown in global trade, especially given Malaysia’s strong linkages to the US and China.
“A repricing of AI related assets could prompt global risk aversion and tighten financial conditions, potentially leading to capital outflows from emerging markets including Malaysia.
“The second channel is through the real economy particularly slowdown in trade. If the US growth slows, that has an impact on Malaysia’s growth. In fact, in previous analysis, we showed that a one-percentage-point slowdown in the US growth lowers Malaysia’s growth by 0.8 percentage point,” he said.
Meanwhile, chief economist for Asia Franziska Ohnsorge said the EAP region’s growth is projected to moderate to 4.5% in 2026-2027 or 0.3 percentage point higher than the projected six months ago. This is largely driven by strong high tech investment and exports in countries that are part of the AI value chain.
Several countries in the region, including China, Malaysia, the Philippines, Thailand, and Vietnam are benefitting significantly from their roles in value chains for goods related to AI.
“But elsewhere in the region, high energy prices are weighing on growth prospects. The influence of AI on the region’s industry is unmistakable.
“AI is already reshaping labour demand, with firms increasingly seeking workers with both AI-related and complementary skills, particularly in areas such as mathematics, communications and collaboration,” she said.
Ohnsorge said East Asia’s electronics sector is a major participant in AI-related value chains and that is helping support growth even while cost of the energy is holding back other sectors.
She said AI-related products account for more than half of export growth in several East Asian countries and more than 70% of export growth in Malaysia, the Philippines, Thailand and Vietnam.
At the same time, she said elevated energy prices continue to weigh on growth prospects and have contributed to higher inflation across the region in 2026, with price pressures expected to remain elevated into 2027.
Looking ahead, she noted that the downside risks to the growth outlook include a potential slowdown in global AI-related activity, persistently high energy prices and greater-than-expected damage from El Nino, particularly through its impact on agricultural production.
