Domestic Demand Household Spending Remain Key Growth Anchors In 2025

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MALAYSIA’s GDP grew by +4.4% year-on-year (YoY), marginally below the advance estimate of 4.5%, sustained by resilient domestic demand.
Household spending remained firm, supported by favourable labour market conditions and income-related policy measures, including adjustments to the minimum wage and civil service salaries.
Notably, both private and public investment posted stronger gains, underpinned by the realisation of approved projects and ongoing infrastructure activity.
“On the external front, export growth moderated, weighed down by weaker commodity-related shipments, though this was partially offset by steady electrical and electronics (E&E) exports and continued recovery in tourism receipts,” said Public Investment Bank.
Imports rose at a faster pace, reflecting higher demand for capital goods in line with elevated investment activity.

The services sector expanded further, supported by firm consumer-related activities and continued strength in government services.
Manufacturing maintained steady growth, underpinned by domestic-oriented clusters, although gains were moderated by weaker output in refined petroleum production.
Overall expansion was weighed down by a contraction in the mining sector, reflecting lower crude oil and natural gas production.
Bank Negara Malaysia (BNM) guided that Malaysia’s economy is expected to be anchored by resilient domestic demand in 2025, offsetting some of the external drag from weaker trade momentum.
Household spending will continue to underpin growth, supported by steady employment gains, wage growth and targeted income-related policy measures.
Investment activity should remain firm, aided by the rollout of infrastructure projects, high realisation of approved private investments and the implementation of national master plans.

These factors are expected to sustain fixed capital formation, particularly in construction and services-related segments.
Export growth is projected to moderate as the impact of tariff measures filters through and global uncertainty persists.
Nonetheless, demand for electrical and electronic goods alongside a recovery in inbound tourism is likely to provide a partial cushion against the softer external environment.
Against this backdrop, GDP growth is now projected at 4.0% to 4.8% YoY in 2025, below the earlier official estimate of 4.5% to 5.5%.
Malaysia’s inflation remained contained in quarter two 2025 (2Q25), with headline inflation moderating to +1.3% YoY while core inflation was steady at +1.8% YoY.
The softer headline print was mainly due to lower fuel prices and slower food-related price increases, partly offset by a smaller decline in mobile communication services.
Inflation pervasiveness eased to 41.8%, in line with the long-term 2Q average of 43.9%.
At the July meeting, BNM cut the overnight policy rate by 25 basis points to 2.75% as a pre-emptive step to preserve growth amid moderate inflation prospects.
Headline inflation is expected to average 1.5%-2.3% in 2025, with risks tilted to the upside from subsidy rationalisation and SST expansion, though these should be partly cushioned by the reduction in RON95 pump prices and electricity tariff restructuring. — Focus Malaysia

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