According to the Department of Statistics Malaysia, Malaysia’s economy
grew 6% in the second quarter of 2026, the country’s strongest Q2 growth
outside the pandemic period since 2014. Unemployment stood at 3.0% for the
quarter, edging up only slightly from 2.9% in Q1. Headline inflation rose to a
modest 1.9%. By almost every conventional measure, the Malaysian economy is
performing well. Yet the picture looks very different for the rakyat.
There is a persistent sense that wages are not stretching as far as they
used to, that costs keep climbing even as official inflation stays low, and
that the prosperity in the national accounts simply is not showing up in
household budgets.
A regional survey released in September found cost of living to be
Southeast Asia’s single biggest social concern, cited by 42% of respondents,
with Malaysia’s own optimism levels notably tempered by it.
Source: https://en.wikipedia.org/wiki/Formula_One
The economy is growing but the people are not feeling it. So, the
million-dollar question is, why? What follows is one attempt at an answer, not
the final word on it. It starts with a simple observation: everyone is
technically competing in the same race, but nobody is driving the same car.
Bank Negara governor Datuk Seri Abdul Rasheed Ghaffour has been explicit
about what is driving the headline figure: manufacturing strength on continued
global demand for electrical and electronic components tied to artificial
intelligence and data centre construction. This is real, but narrow, dependent
on capital-intensive investment, global supply chains, and a relatively small
number of large export-oriented firms.
These are Porsches in Malaysia’s economic race, purpose-built for this
exact moment in the global economy. They cross the line first, and that part is
real.
A new data centre or expanded chip fabrication line creates high-value
jobs for engineers and technicians, but it does not, in the short run, raise
the income of a retail assistant in Kuching, a hawker stall operator in Chemor,
or an administrative clerk in Johor Bahru.
The same Q2 data also show what the rest of the field is driving.
Agriculture contracted 3.7%, reversing from 2.6% growth in Q1, on weak oil palm
and fishing output. Services eased slightly too, to 5.4%, though it remains the
largest single contributor to overall growth. Mining is the exception worth an
explanation. It rebounded to 10.2% growth after contracting in Q1, but this
tracks global energy prices amid the Middle East conflict, not any shift in the
sector’s role for ordinary workers, mining employs a small fraction of the
workforce compared with agriculture, retail, or services. None of these
domestic-facing sectors are accelerating the way the AI-linked engine is, nor
should they be expected to. They are also where most of the workforce is
employed.
DOSM figures show MSMEs accounted for almost half of total employment in
2025, 48.7%, or 8.09 mil people, spread across retail, hospitality,
agriculture, and small-scale manufacturing. This is the sedan most working
Malaysians are actually driving: reliable enough for daily use but never built
to keep pace with an F1 car. Above all, the gap is not a matter of effort. Same
fuel, different costs.
Roughly a year into BUDI95, Malaysia’s flagship fuel subsidy
rationalisation, its lagging effects are starting to show. Full rollout came in
September 2025, followed by a further quota cut this past April, and it’s this
ongoing tightening that distinguishes this lap of the race from Malaysia’s past
two-speed moments. The issue is not whether the policy makes sense, but how
unevenly its impact lands. Every car runs on fuel, but a rise in fuel cost does
not register the same way for every car.
Transport and logistics costs seep into nearly every other price, and when
they rise for households no longer covered by blanket subsidies, the effect
does not show up cleanly in the 1.9% headline inflation figure.
It shows up instead in what many Malaysians experience as everyday
inflation, food away from home, transport-dependent services, the small
recurring costs of running a household or small business.
A household on the domestic-facing track, where income growth has been
modest, experiences the same subsidy adjustment as a proportionally larger bite
out of a budget that was not expanding to begin with. The policy may be sound
and necessary. Its distributional timing, arriving while one part of the
economy surges and the other merely holds steady, is what turns a fiscally
responsible reform into felt financial strain for a large share of the
population.
To return to the analogy: the Proton sedan feels this pinch immediately as
its budget was never built with much margin. The Porsche, by contrast, barely
notices the same rise in fuel cost against a defined revenue stream from
various businesses of its owner. Different cars need different strategies.
To be clear, I am not arguing against subsidy rationalisation. Fiscal discipline, targeted subsidy reform, and Malaysia’s push to attract high-value AI and data centre investment are each sound policy directions on their own merits, and the second quarter’s figures reflect real, creditable achievement. This is not a case of Malaysia’s economic management having failed. The issue is sequencing and absorption, not direction, and no amount of steady driving closes a gap between two fundamentally different machines. Something else may need to change the terms of the race.
Malaysia is not the first country to face this problem, a narrow,
foreign-investment-driven engine generating headline growth the rest of the
economy does not proportionately feel. Ireland offers one parallel worth
considering: a small number of multinational tech and pharmaceutical firms
account for a strikingly large share of its corporate tax revenue, disconnected
from activity in the rest of the Irish economy. Dublin’s response, modelled
explicitly on Norway’s sovereign wealth fund, has been to divert a portion of
that windfall into long-term investment vehicles rather than spend it through
the ordinary budget. Notwithstanding, Ireland’s own fiscal watchdog has warned
the government is saving too little of it and spending too much now, a reminder
that the temptation to let the fast car keep everything it earns is not unique
to any one country.
Malaysia’s version of this question, whether AI-linked investment and
export revenue should be treated, in part, as a windfall to be channelled
deliberately toward the rest of the field, deserves its own careful
examination.
A sedan does not become a Porsche by driving more carefully. Understanding
where the growth is coming from, and where it has not yet reached, seems a
reasonable place to start before anyone proposes how to bring the rest of the
field closer to the front.
Reference:
Malaysia’s
economy is an F1 car on paper, a sedan on the ground, Dr Mohd Zaidi Md Zabri,
Focus Malaysia, 28 Sept 2026
