Malaysia's average annual economic growth is expected to be around 4.3% from 2026 to 2035 due to a pro-growth stance and fiscal discipline

Malaysia's economic growth has been driven by improvements made in pro-investment posture, governance and infrastructure, including ports and power connectivity, according to the latest Southeast Asia Outlook report published Wednesday by DBS Group, Bain & Co., and Vriens & Partners.

Malaysia's semiconductor and data center commitments are likely to lead to a stronger pipeline ahead for foreign investments, reversing the lag they have seen earlier.

"Upside capture is underpinned by substantial commitments in data centers, semiconductors, and AI-linked manufacturing," the report said.

However, the country has also benefited from robust domestic demand, including strong investment momentum and export tailwinds, which will boost economic growth.

"Malaysia's structural advantages limit its downside," the report said, adding it has a strong trade position as it is exposed to US semiconductor supply chains and Chinese infrastructure investments. Its resource buffers in palm oil, liquefied natural gas, and petroleum are also strong advantages.

The country faces issues of its semiconductor presence being concentrated in lower-margin, back-end assembly, testing, and packaging segments, and the strain on the talent pipeline. Until these gaps narrow, the investment pipeline will outpace Malaysia's capacity to convert it, the report said.