Malaysia's economy: GDP growth of 4.5% despite export problems!

Malaysia's economy: GDP growth of 4.5% despite export problems!

Malaysia's economy recorded continuous growth in the last quarter. According to preliminary estimates, gross domestic product (GDP) will increase by 4.5% in the second quarter of 2025 compared to the previous year. This positive development is primarily supported by strong domestic demand, which offsets the weakness in exports, reports Market screener.

The services and manufacturing sectors play a central role in growth. In the first quarter the growth rate was 4.4%. Current high-frequency data from retail, wholesale, automobile sales and government spending point to improving economic activity. Nevertheless, exports remain a weak point: in June, exports fell by 3.5% year-on-year, reaching their lowest level since December 2023.

Challenges of exports

Deliveries to China, one of Malaysia's most important trading partners, were particularly affected, falling by 9.3%. Trade activity overall has slowed, possibly reflecting the imposition of 19% import tariffs by the US, which could weigh on growth. The central bank, Bank Negara Malaysia, responded to the weaker economic outlook in July by cutting interest rates for the first time in five years.

The interest rate cut is intended to give the economy new impetus and mitigate the effects of global trade uncertainties. There are also indications that the likelihood of further interest rate cuts this year is increasing. Despite these challenges, the Malaysian ringgit remains strong against the US dollar, up over 5% year-to-date, creating scope for rate cuts.

Forecasts and outlook

Separate polls, like those from Reuters, show GDP growth of 4.2% is forecast for all of 2025. This is below the government target of 4.5% to 5.5%. Nevertheless, the outlook for Malaysia's economy remains generally positive thanks to strong domestic demand and targeted monetary policy measures, according to the economic report from SECO elaborates further.