Malaysia set to gain from AI and data centre boom amid regional caution

MALAYSIA, 22 JULY 2026 —

Malaysia’s economy is forecast to grow 4.9% in 2026 as surging demand for artificial intelligence hardware and rising data-centre investments offset energy price pressures and geopolitical risks across the region.

“Malaysia’s outlook is supported by strong electronics-related activity, steady domestic demand and resilience against energy stress,” S&P said in its report. The agency expects growth of 4.7% in 2027, underpinned by continued strength in electronics manufacturing and digital infrastructure investments.

The ratings agency noted that South-East Asian economies such as Malaysia are seeing significant data-centre investment, which is boosting construction and capital spending. It highlighted Malaysia as one of the regional economies where the positive impact of the technology export boom outweighs the drag from higher energy costs linked to the Middle East conflict.

S&P’s baseline assumes energy disruptions ease in the second half of the year, allowing oil prices to moderate. It warned, however, that prolonged disruptions could undermine growth and reignite inflationary pressures.

iFast Capital assistant manager of research Kevin Khaw said Malaysia secured 32% of South-East Asia’s private AI funding in the six months to June 2025. He noted that more than two-thirds of the region’s data-centre capacity now under construction across the five main economies is committed to Malaysia.

Khaw pointed out that Malaysia’s near-term growth is construction and capital-expenditure-led rather than driven by recurring services. “A key test is whether the mix shifts toward recurring revenue streams such as information and communication technology services, integrated circuit design or higher-value manufacturing,” he said.

He added that Malaysia remains exposed to global tech cycles: “A global tech downturn would transmit into a lag in domestic demand. We see the risk distribution skewed to the downside and running through tech investment rather than consumption.” Khaw expects third-quarter GDP growth of between 3% and 4%.

Regional investor sentiment reflects the heightened risks. A Schroders survey of institutional investors and wealth managers overseeing US$72 trillion in assets found that 87% of Asia-Pacific respondents expect greater market volatility over the next year. Concerns over Middle East conflicts, US foreign policy uncertainty and energy security were cited most frequently.

The survey showed only 5% of Asia-Pacific respondents planned to maintain their strategic asset allocations, while 53% intended to increase geographic diversification outside the US and 48% aimed to shift toward defensive assets. Among regional investors, 76% cited the Middle East conflict as their top concern, followed by US foreign policy and global leadership uncertainty at 70%.

For Malaysia, the findings suggest that despite elevated external risks, its role in the global AI supply chain and its emergence as a regional data-centre hub could help sustain investment and cushion growth. Analysts say the country’s exposure to semiconductor and data-centre capital expenditure means domestic demand remains tied to global tech cycles, increasing vulnerability to any slowdown.

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