By TENGKU NOOR SHAMSIAH TENGKU ABDULLAH
KUALA LUMPUR, Dec 31, 2025 – As 2025 draws to a close, the global economy is slowing—but not breaking. Growth forecasts for 2026 remain broadly positive across major economies, and the risk of an outright downturn appears contained. Yet beneath the headline numbers lies a more consequential shift. The year ahead will test not how fast economies can expand, but how exposed they are to structural risks that have been quietly accumulating.
In an exclusive year-end interview with TNS News, Alicia García Herrero, Chief Economist for Asia-Pacific at Natixis and Senior Research Fellow at Bruegel, characterizes 2026 as a “transition year”—one in which vulnerability, rather than velocity, becomes the defining economic variable.
A Decelerating Global Engine
“The global economic landscape entering 2026 appears moderately weaker than in 2025, with widespread but generally modest deceleration across major economies,” García Herrero says.
- China: Growth is expected to moderate to 4.8% as the economy continues to adjust to a prolonged property-sector correction.
- Europe: Faces a sharper deceleration, weighed down by persistent inflation, energy transition costs, and tighter fiscal policy.
- The United States: Likely to experience only a marginal slowdown, supported by resilient labor markets and selective fiscal support under the returning Trump administration.
The Geopolitical Chessboard: Pragmatism Over Confrontation
García Herrero does not expect a return to acute U.S.–China confrontation in the near term. Instead, she anticipates a more pragmatic relationship through the next phase of the U.S. political cycle.
“The Trump administration is likely to maintain a relatively accommodative stance toward China, prioritizing domestic stock-market stability and economic confidence,” she explains. Even in sensitive areas such as advanced AI chips, selective licensing and deal-making may prevail over sweeping restrictions. While this reduces the risk of sudden trade shocks, it does not eliminate the drag from China’s structural slowdown on regional demand.
The Hidden Risks: Dollar Liquidity and the “Captive Loop”
One of the most underappreciated risks entering 2026 lies in U.S. dollar liquidity. A “higher-for-longer” Federal Reserve stance would keep funding costs elevated for emerging markets, while any reduction in U.S. dollar swap lines would remove a critical crisis backstop.
Simultaneously, ASEAN’s growing use of the Renminbi (RMB) in trade settlement introduces new strategic trade-offs. While it reduces reliance on the dollar, it creates what García Herrero calls a “captive loop.” > “Because the renminbi remains non-convertible on the capital account, exporters largely recycle earnings back into Chinese imports, deepening economic reliance on Beijing even as dollar exposure is reduced. This carries longer-term implications for policy autonomy.”
Malaysia’s Dual Reality: The ART of the Deal
For Malaysia, 2026 presents a dual reality. The country remains a regional leader, recently jumping to 23rd in the IMD World Competitiveness Ranking. A key shield for the nation is the Agreement on Reciprocal Trade (ART) signed in October, which capped U.S. reciprocal tariffs on Malaysian goods at 19%—a significant advantage over neighbors facing much higher barriers.
However, the exposure remains high. “Malaysia’s electrical and electronics (E&E) sector is by far the most exposed to U.S. trade measures,” she warns, noting that electronics account for more than half of Malaysia’s exports to the United States.
Furthermore, the “China dependency trap” in green technology persists. Without greater localization of upstream components—like polysilicon for solar panels—Malaysia risks being caught in U.S. “origin-of-goods” audits aimed at curbing Chinese influence.
The Bottom Line: Managing Vulnerability
As 2026 approaches, growth will no longer be the most meaningful indicator of economic health. Exposure—to external demand shocks, tighter financial conditions, and strategic dependency—will matter more.
For Malaysia and its ASEAN neighbors, the challenge is no longer sustaining momentum, but managing vulnerability. Economies that reduce concentration risks, diversify supply chains beyond intermediate Chinese goods, and strengthen financial buffers will be best positioned.
In 2026, resilience will not be measured by how fast economies grow—but by how well they absorb shocks when growth is no longer enough. – TNS NEWS
About the Expert: Alicia García Herrero is Chief Economist for Asia Pacific at Natixis, one of Europe’s leading financial institutions, and Senior Research Fellow at Bruegel, a prominent Brussels-based economic think tank. She specializes in Asian economies, international trade, currency dynamics, and geopolitical economics, and is widely recognized as one of the foremost experts on China’s economy and its regional impact.
2026 AT A GLANCE
| Metric | Forecast / Status |
| Global Trade Growth | Slowing to 0.5% (from 2.4% in 2025) |
| Malaysia GDP Growth | 4.0% – 4.5% (Targeted) |
| US-Malaysia Tariff | 19% (Under ART Agreement) |
| Key Risk | US Dollar Liquidity Squeeze |
| Top Opportunity | AI Infrastructure & Advanced Packaging |