Domestic demand drives Malaysia’s Q2 GDP up 4.4% amid export slump
However, the expansion misses the 4.5% rate forecast by economists and the official advance estimates
[KUALA LUMPUR] Malaysia’s domestic demand shielded the economy from a sharper slowdown in the second quarter, and helped deliver a 4.4 per cent year-on-year growth – despite tumbling net exports and the current account surplus being at its smallest in over 20 years.
The April-to-June performance announced by Bank Negara Malaysia on Friday (Aug 15) fell just shy of the 4.5 per cent growth forecast by economists in a recent Reuters poll, as well as the advance estimates from the Department of Statistics Malaysia (DOSM).
DOSM chief statistician Mohd Uzir Mahidin attributed the economic growth to several key factors, including continued consumer spending, a resilient labour market and sustained trade activity.
He noted that the US-China tariff truce had lifted exports in the region’s economies, and that moderating inflation at home and abroad had supported purchasing power.
Between April and June, Malaysia’s private consumption rose 5.3 per cent year on year; public consumption went up by 6.4 per cent, also on the year.
Net exports dropped over 70%
Despite strong electrical and electronics exports, the overall trade balance weakened. Net exports plunged by 72.6 per cent, dragged down by a decline in mining-related exports and a rise in capital imports.
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Mohd Uzir said: “Lower oil and gas production due to planned maintenance activities was a factor that weighed on growth in the second quarter.”
He added that slower exports were exacerbated by waning support from front-loading activities; however, the continued demand for electrical and electronics products and robust tourism activities would support export growth going forward, he said.
Overall growth was weighed down by the mining sector’s decline amid lower commodity production, said Bank Negara governor Abdul Rasheed Ghaffour.
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Malaysia’s current-account surplus for the quarter narrowed to RM300 million (S$91.3 million), the smallest in 26 years. The goods account surplus narrowed sharply to RM17 billion, while the services account deficit edged up to RM3.3 billion.
Lingering uncertainties
The governor, expressing cautious optimism about Malaysia’s economic outlook, said that the country is on a “solid footing”, ready to face future headwinds, even as front-loading normalises.
He acknowledged that persistent external challenges, especially the lingering tariff uncertainties, could take time to play out, but that the country is approaching these challenges from a position of strength.
Abdul Rasheed highlighted that the economy is underpinned by resilient domestic demand, ongoing electrical and electronics sector growth, and a diversified export base. “These fundamentals, together with continued structural reforms, ensure Malaysia is well-positioned to navigate the evolving global landscape,” he explained.
Last month, Bank Negara lowered the economic forecast range to between 4 and 4.8 per cent for 2025, down from its estimate in March of 4.5 to 5.5 per cent.
The revision of economic forecasts is a nod to the rising uncertainty over US trade tariffs, shifting trade alliances and geopolitical instability – all of which are factors weighing on the outlook for the region’s export-reliant economies.
Economists’ 2025 growth forecast: between 4.1% and 4.4%
Mohd Afzanizam Abdul Rashid, Bank Muamalat’s chief economist, projects that Malaysia’s economy will grow more slowly in the second half of 2025, and come in at between 3.7 and 3.8 per cent; the full-year growth rate would be around 4.1 per cent.
He highlighted that Bank Negara has been proactive with its monetary policy, having cut the statutory reserve requirement and the overnight policy rate earlier this year. “These measures, along with RM2 billion in Merdeka cash handouts, are expected to boost domestic demand and counteract the looming risks of a global slowdown,” he told The Business Times.
ANZ Research economists Arindam Chakraborty and Khoon Goh noted that external demand is expected to weaken, but that overall growth should remain supported by resilience in domestic demand and a sustained momentum in investment.
The research firm forecasts Malaysia’s GDP to expand at 4.1 per cent in 2025.
Regarding monetary policy, the ANZ Research economists do not expect another rate cut unless weaker external demand significantly affects incomes and consumption.
RHB Bank senior economist Chin Yee Sian had a slightly more positive outlook on the country’s economic growth, forecasting a 4.2 per cent GDP expansion, with potential to reach 4.4 per cent. She noted that the outcome hinges on external factors such as clearer guidance on US tariffs, easing US-China tensions, as well as the impact of the domestic stimulus measures.
Chin added that some domestically focused industries remain resilient to global uncertainties because they are insulated by strong local demand; these sectors are retail, consumer goods, and construction.
Ringgit gains
In Q2, the Malaysian currency had appreciated by 5.9 per cent against the US dollar as at Aug 13. On a nominal effective exchange rate basis, the ringgit rose by 2.1 per cent.
As at 4 pm on Friday, the ringgit was trading at 4.2184 against the greenback, nearly 5.7 per cent higher than the RM4.4715 level at the start of the year. Against the Singapore dollar, it depreciated around 0.5 per cent to 3.2893, from RM3.2742 on Jan 1.
Commenting on the currency’s movement, Bank Negara’s Abdul Rasheed said that he expected the ringgit to continue being influenced by external factors, but that its value would be supported by Malaysia’s favourable economic outlook, structural reforms, and ongoing efforts to encourage capital inflows.
Moderate inflation
Between April and June, the headline inflation eased to 1.3 per cent. Its core inflation remained broadly stable, at 1.8 per cent. The governor said that the lower inflation for fuel and food-related items were partly offset by a slower decline in prices for mobile services.
Abdul Rasheed expects inflation to remain moderate in 2025, and projects headline inflation to average between 1.5 and 2.3 per cent.
The headline inflation forecast range for the year was revised down, following the more moderate demand and cost outlook of the earlier projections in March 2025.
“Inflationary pressure from global commodity prices is expected to remain limited, contributing to moderate domestic cost conditions. In this environment, the impact of domestic policy measures on inflation is expected to remain contained,” he added.
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