Malaysia Expects Third Year of Growth Above 5% as Budget 2027 Targets Wages and Aid

Growth forecast puts household incomes in focus

Malaysia expects economic growth to exceed 5% in 2026 for a third consecutive year, with output rising 5.5% in the first nine months and the government preparing higher spending, wage measures and targeted assistance in Budget 2027.

Finance Minister II Datuk Seri Amir Hamzah Azizan said the government was increasingly confident of passing the 5% mark, having previously projected growth of between 4.8% and 5.3%. The advance estimate for the third quarter was 5.3%, while detailed figures were scheduled for release by the Department of Statistics Malaysia (DOSM) on November 18, 2026.

The economy has expanded faster across the first nine months than during the same period of 2025, when growth was 4.8%. The improvement of 0.7 percentage points gives the government a stronger starting position for the final quarter, although the annual result still depends on activity during those remaining three months.

Amir Hamzah cited annual growth of 5.1% in 2024 and 5.2% in 2025. DOSM's July statistical table lists the 2024 figure as 5.2%, rather than the minister's 5.1%; both figures put that year's expansion above the threshold underpinning his forecast.

For households, the immediate issue is how stronger national output translates into wages, jobs and help with everyday expenses. Amir Hamzah linked the growth outlook to efforts under the Madani Economic framework to create better employment opportunities and spread the benefits more widely.

Speaking in the Dewan Rakyat on October 29, the minister set out the government's revised expectation:

The government is now confident that growth this year will exceed 5%.

Third quarter slows, while the wider trend strengthens

DOSM's advance estimate put third quarter growth at 5.3%, down from the preceding quarter's 6.0%. Those rates measure changes against the same quarter a year earlier. Malaysia was still producing more goods and services than a year before, but the pace of expansion had eased.

The second quarter figure also illustrates how estimates change as more information becomes available. DOSM's July GDP release, published on July 17, initially estimated growth at 5.8%. The later third quarter announcement used 6.0% as the comparison for that earlier quarter.

DOSM explains in its July release that advance estimates draw on the information available during preparation, while the subsequent preliminary release provides a more detailed assessment. Its own comparison table shows first quarter growth for 2026 moving from an advance estimate of 5.3% to a preliminary figure of 5.4%.

The July release estimated growth of 5.6% in the first half of 2026, compared with 4.5% a year earlier, an improvement of 1.1 percentage points. The later figure of 5.5% for the first nine months therefore fits a picture of stronger activity than in 2025, even as the third quarter lost some speed.

Services and factories provide the main support

Services remained the main driver of third quarter growth, expanding by 5.4%. Wholesale and retail trade, information and communication, and finance and insurance supported the increase. These activities connect the national growth figures to shops, communications services and financial transactions used by businesses and households.

Manufacturing grew by 7.5%, supported by industries producing goods for export. DOSM identified electrical, electronic and optical products, alongside petroleum, chemicals, rubber and plastics products, as sources of strength.

The size of these sectors helps explain their importance. DOSM's July table put services at 59.5% of GDP in 2025 and manufacturing at 23.0%. Together, they represented 82.5% of the economy, using the shares listed in that table.

Manufacturing had already strengthened in the July assessment, which estimated second quarter growth at 7.5%, up from 5.9% in the first quarter. The later third quarter announcement used a revised second quarter manufacturing figure of 7.3%, followed by 7.5% in the third.

Services followed a gentler course. The third quarter increase of 5.4% compared with a revised 5.9% in the second quarter; the July advance estimate for that earlier period had been 5.4%. Taken together, the figures show continued expansion in the two largest sectors, with factories gaining pace while services slowed.

Mining reverses as agriculture recovers

Mining and quarrying contracted by 4.9% in the third quarter because of a decline in crude oil and condensate activity. Condensate is a light liquid hydrocarbon recovered during oil and gas production.

The fall followed second quarter mining growth of 9.2% in the later comparison. DOSM's July advance estimate had put that earlier increase at 10.2%, driven by natural gas. Mining therefore moved from a sharp rebound to contraction within the year.

Agriculture moved in the opposite direction. Output rose by 1.3% in the third quarter after shrinking by 3.7% in the second, with oil palm and livestock supporting the recovery. The July release had recorded declines across most agricultural subsectors during the second quarter.

Construction continued to expand, growing by 6.0% in the third quarter against a revised 6.5% in the second. The earlier July estimate had put second quarter construction growth at 6.6%. Buildings for uses other than housing, particularly data centres, and specialised construction activities supported the sector.

These movements explain why the national figure can remain relatively steady while individual industries experience very different conditions. In the third quarter, services, manufacturing, construction and agriculture expanded, while mining reduced the combined pace.

From economic output to better pay

Amir Hamzah described the Madani framework as an effort to raise Malaysia's economic ceiling, meaning its capacity to generate business activity and better jobs. He also said growth should give the government more room to strengthen the economic floor, meaning the support and income available to people at the lower end.

Budget 2027 places income measures at the centre of that approach. The minister pointed to a higher minimum wage and incentives or encouragement for government linked investment companies and government linked companies to offer fairer pay.

Government linked investment companies manage investments associated with the state, while government linked companies are businesses in which the government has an ownership interest. Their wage decisions provide a direct channel through which public policy can affect employees.

Amir Hamzah explained the purpose of these measures when discussing how growth should reach workers:

"We can see that many of the initiatives we have undertaken, including the minimum wage policy and efforts involving GLICs and GLCs to raise wages to appropriate levels, are aimed at ensuring that the benefits of economic growth are also passed on to the people," he said.

The minister's remarks did not specify a new minimum wage amount or an implementation date for the wage measures. Those details will determine the size and timing of any additional income for affected workers.

Cash and basic assistance reach millions

The government is also strengthening Sumbangan Tunai Rahmah (STR), or Rahmah Cash Aid, and Sumbangan Asas Rahmah (SARA), or Rahmah Basic Contribution. Amir Hamzah said targeted assistance was needed because some citizens would not benefit directly from economic expansion.

By October 22, nearly RM12 billion had been disbursed through STR and SARA assistance. The minister told Parliament that RM3.6 billion had been distributed through three phases of STR payments.

Nearly nine million recipients had used SARA assistance, generating RM6.1 billion in transactions and a reported utilisation rate of 99.7%. More than 20 million recipients had used SARA Untuk Semua assistance, with RM1.9 billion in transactions and a utilisation rate of 92%.

Those utilisation rates show how much of the respective assistance had been used under the programme measures cited by the minister. The recipient totals relate to different schemes, so adding them together would count some people more than once.

Amir Hamzah also said efforts under Payung Rahmah were being intensified to address living costs. Wage measures and assistance serve different needs: higher pay supports income from work, while targeted benefits help eligible households meet expenses, including those without a direct gain from expanding industries.

Spending rises as the deficit target falls

Federal expenditure is projected to rise to RM459.8 billion in 2027 from a revised RM444.1 billion in 2026. The increase of RM15.7 billion is about 3.5%, calculated from the figures Amir Hamzah gave Parliament.

The minister listed RM376 billion for operating expenditure and RM83 billion for development expenditure. Operating expenditure covers the government's recurring activities, while development spending finances projects and investment. The stated components total RM459 billion, leaving RM0.8 billion between that breakdown and the stated expenditure total; no explanation accompanied the figures.

The government nevertheless targets a fiscal deficit of 3.3% of GDP in 2027, down from an estimated 3.6% in 2026. A deficit occurs when government spending exceeds revenue. Measured against GDP, the target would narrow the annual gap by 0.3 percentage points.

Amir Hamzah acknowledged that continued deficits mean government debt continues to rise. He told Parliament:

As long as the country records a deficit, debt will continue to increase.

The minister said financing should support productive needs. He also explained that total sukuk issuance includes replacing obligations that are reaching repayment, as well as raising new financing. Sukuk are Islamic financing instruments, and refinancing replaces an existing obligation with a new one.

Project schedules shape development allocations

The 13th Malaysia Plan has a development spending ceiling of RM430 billion across five years. Dividing that amount equally would produce RM86 billion a year, compared with the RM83 billion development allocation cited for 2027.

Amir Hamzah said annual budgets follow the progress, readiness and payment requirements of individual projects. Some projects need larger payments during construction, while others require less money before work is ready to proceed.

The minister also detailed Sabah's RM18.7 billion federal allocation: RM8.9 billion in operating expenditure, RM7 billion for development and RM2.8 billion in grants to the state government. Those three components add up to the stated total.

Negotiations over Sabah's special grant under the Federal Constitution were continuing. Amir Hamzah said the government was working towards a fair and sustainable calculation method. For Sabah, the unresolved formula sits alongside the spending and grants already identified in the federal allocation.

The dates behind the forecast

Malaysia's growth outlook developed through successive statistical releases and parliamentary updates. The key dates show how the early estimates connect with the next scheduled assessment:

• July 17, 2026: DOSM published its advance second quarter estimate of 5.8% and first half growth of 5.6%.
• August 14, 2026: The July statement scheduled the more detailed second quarter GDP release for this date.
• October 16, 2026: DOSM announced advance third quarter growth of 5.3% and growth of 5.5% across the first nine months.
• October 22, 2026: The government's assistance update recorded nearly RM12 billion disbursed through STR and SARA.
• October 29, 2026: Amir Hamzah told the Dewan Rakyat that the government expected annual growth to exceed 5%.
• November 18, 2026: DOSM was scheduled to release detailed preliminary third quarter GDP figures.

Amir Hamzah also discussed the outlook at Finance Run 2026 in Putrajaya. More than 2,000 people attended the Ministry of Finance event, held in conjunction with National Sports Day and hosted that year by the Department of Valuation and Property Services (JPPH).

Haze had forced organisers to postpone the run by two weeks. The minister said the annual programme encouraged recreation and strengthened relationships among ministry and agency personnel, with agencies taking turns to organise the sporting activities.

Key Points

• Malaysia expects GDP growth above 5% in 2026, following two years above that level.
• Growth reached 5.5% in the first nine months, compared with 4.8% during the same period of 2025.
• Third quarter growth was estimated at 5.3%, down from 6.0% in the preceding quarter.
• Services and manufacturing supported expansion, while mining contracted by 4.9%.
• Budget 2027 focuses on wages, targeted assistance and projected federal spending of RM459.8 billion.
• The government targets a fiscal deficit of 3.3% of GDP in 2027, compared with 3.6% in 2026.
• Detailed preliminary third quarter GDP figures were scheduled for November 18, 2026.