KUALA LUMPUR: JP Morgan has raised its 2026 Malaysia gross domestic product (GDP) growth forecast to 5.3 per cent from 5.0 per cent after the country’s stronger-than-expected second-quarter economic performance.

The firm maintained its expectation that Bank Negara Malaysia will raise interest rates in the fourth quarter.

According to advance estimates, Malaysia’s economy would have expanded 5.8 per cent year-on-year in the second quarter of 2026.

This was driven by a sharp 8.5 per cent seasonally adjusted annualised quarter-on-quarter rebound.

JP Morgan said the performance marked a significant acceleration from the first quarter, when sequential growth had slowed to a three-year low of 1.7 per cent annualised.

It said the expected second-quarter rebound was broad-based across sectors, reversing the widespread loss of momentum seen in the preceding quarter.

The firm noted that manufacturing remained the standout performer, with annualised sequential growth strengthening to 10.2 per cent, supported by broad-based gains across both technology and non-technology production.

“Manufacturing growth has accelerated in the first half of 2026 relative to the second half of 2025, while other sectors, although still resilient, have moderated to varying degrees,” it said in a note.

Based on the stronger second-quarter data, JP Morgan lifted its full-year 2026 GDP growth forecast to 5.3 per cent, above the market consensus of 4.6 per cent and the central bank’s official projection of between 4.0 per cent and 5.0 per cent.

It kept its sequential growth forecasts for the third and fourth quarters unchanged at 5.0 per cent and 4.5 per cent annualised, respectively.

JP Morgan said sustained economic strength in the second half would reinforce the case for Bank Negara to raise the overnight policy rate in the fourth quarter, despite easing inflation.

Headline inflation slowed to 1.9 per cent year-on-year in June from 2.0 per cent in May, mainly due to lower energy prices, while food and core inflation also remained subdued.

Following the softer inflation data and a lower in-house oil price assumption of US$83 per barrel for the second half of 2026, compared with its earlier estimate of US$102, JP Morgan lowered its 2026 headline and core inflation forecasts by 0.1 percentage point to 1.8 per cent and 1.9 per cent respectively.

“But from a monetary policy perspective, since Bank Negara’s 25-basis-point rate cut in July 2025 was delivered to insure growth amid external headwinds, such as tariffs and later the Middle East conflict, a soft inflation trajectory should not stand in the way of potential policy rate normalisation, in our view,” it said.