Malaysia’s Growth Holds Steady at 4.4% in 2Q25, but Tariff Risks Cloud Outlook

Malaysia’s economy expanded by 4.4% year-on-year in the second quarter of 2025, matching the pace of the previous quarter, according to UOB Bank’s latest report. This brought first-half 2025 growth to an average of 4.4%, slower than 5.2% in 2H24 and 5.0% in 1H24, reflecting a gradual loss of momentum.

Domestic demand was the main growth driver. Private consumption rose 5.3%, up from 5.0% in 1Q25, while investments surged 12.1% compared to 9.7% earlier. Government spending increased 6.4% and stock replenishment added 0.3 percentage points to GDP. These gains offset a 2.6-percentage-point drag from weaker net trade.

By sector, services (+5.1%) remained the backbone of the economy, followed by construction (+12.1%), manufacturing (+3.7%), and agriculture (+2.1%), while mining and quarrying declined 5.2%.

Tariff Risks Cloud Outlook

However, UOB cautioned that second-half growth may slow to around 3.6%, bringing full-year 2025 GDP to 4.0%, the lower end of Bank Negara Malaysia’s (BNM) 4.0–4.8% target range. The slowdown is expected as reciprocal US tariffs of 19% on Malaysia take effect on 7 August, with possible 10–25% levies on BRICS nations pending.

Inflation is projected to stay subdued at 1.8%, while the unemployment rate remains at 3.2%. Fiscal deficit is forecast to narrow to 3.8% of GDP, with a current account surplus of 1.7%.

BNM kept the Overnight Policy Rate at 2.75% in September but could cut to 2.50% by year-end. The ringgit (USD/MYR) is expected to strengthen from 4.20 in 4Q25 to 4.12 by 3Q26, aided by narrowing rate differentials as the US Federal Reserve begins easing.

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