Malaysia’s economy grew 4.5% year-on-year in Q2 2025, driven by strong domestic consumption and steady manufacturing

Malaysia’s economy expanded by 4.5% year-on-year in the second quarter of 2025, maintaining the growth rate from the previous quarter. This performance was primarily driven by robust domestic consumption and steady manufacturing growth, which helped offset a slowdown in exports. The services sector led the growth with a 5.3% increase, while manufacturing rose by 3.8%.

Despite the positive growth, export activity weakened, with June marking the second consecutive monthly decline, falling 3.5% year-on-year. The global economic environment remained uncertain due to U.S. President Donald Trump’s tariff policies and ongoing geopolitical tensions. Malaysia is facing a 25% tariff on exports to the U.S. unless a trade agreement is reached before August 1.

In response to these challenges, Bank Negara Malaysia (BNM) has maintained its 2025 growth forecast at 4.5% to 5.5%. BNM Governor Abdul Rasheed Ghaffour emphasized that sustained domestic demand, driven by robust investment activity from multi-year projects, would be the key growth driver. He also highlighted the importance of Malaysia’s diversified economic structure and policy tools in navigating global uncertainties.

Inflation is projected to trend higher but remain manageable amid easing global costs and the absence of excessive demand pressures. BNM expects headline inflation to average between 2% and 3.5% in 2025, with core inflation projected at between 1.5% and 2.5%.

The International Monetary Fund (IMF) has also projected Malaysia’s economy to grow by 4.7% in 2025, supported by strong private consumption, buoyant investment, and improvements in external demand for electrical and electronic products. The IMF noted that Malaysia’s favorable economic conditions provide an opportunity to build macroeconomic policy buffers and accelerate structural reforms.

In summary, Malaysia’s economy continues to demonstrate resilience, with strong domestic consumption and manufacturing growth offsetting export challenges. The government’s proactive measures and the country’s diversified economic structure are expected to support sustained growth amid global uncertainties.