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Economic and Financial Developments in Malaysia in the First Quarter of 2025
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16 May 2025
The Malaysian economy expanded by 4.4% in the first quarter of 2025 (4Q 2024: 4.9%), driven by the steady expansion in domestic demand. Household spending was sustained amid positive labour market conditions and income-related policy measures, including the upward revision of minimum wage and civil servant salary. The steady expansion in investment activities was supported by realisation of new and existing projects. In the external sector, export growth was slower due mainly to lower mining exports. This was partially offset by stronger electrical and electronics (E&E) exports and tourism activity. At the same time, imports growth, although more moderate, continued to be driven by strong demand for capital goods, reflecting continued investment and trade activities.
On the supply side, growth was driven by the services and manufacturing sectors. Services sector was supported by higher Government services while strong E&E production underpinned the performance in the manufacturing sector. However, normalisation in motor vehicle sales and production following strong performances over the last three years affected the growth of services and manufacturing sectors respectively. Overall growth was also weighed down by a contraction in the mining sector amid lower oil and gas production. On a quarter-on-quarter, seasonally-adjusted basis, growth expanded by 0.7% (4Q 2024: -0.2%).
Headline inflation moderated, while core inflation edged higher
Headline inflation moderated to 1.5% in the first quarter (4Q 2024: 1.8%). The moderation was largely due to lower utilities inflation at 3.0% (4Q 2024: 18.1%). This followed the dissipation of the effects of earlier water tariff adjustments and higher electricity charges for high-usage households in 1Q 2024. Inflation in mobile communication services continued to decline, averaging at -13.5% (4Q 2024: -10%). Core inflation, however, edged higher to 1.9% (4Q 2024: 1.7%). It was driven mainly by rental inflation, which rose to 2.1% (4Q 2024: 1.7%). Inflation pervasiveness, measured by the share of Consumer Price Index (CPI) items recording monthly price increases, experienced an uptick amid seasonal menu price adjustments. Nonetheless, it remained well below the long-term average for the first quarter (43.3%; 4Q 2024: 39.8%; 1Q 2011-2019: 52.2%).
Ringgit remained broadly stable against currencies of major trade partners in the first quarter of 2025
In the first quarter of 2025, the ringgit remained broadly stable. The nominal effective exchange rate (NEER) against the currencies of Malaysia’s major trade partners increased marginally by 0.01%. The ringgit also appreciated by 0.8% against the US dollar. This movement was primarily driven by the weakening of the US dollar as growing uncertainties over US trade policy resulted in increased expectations of more subdued US economic growth.
External factors are expected to continue influencing the ringgit exchange rate. Notwithstanding, Malaysia’s positive macroeconomic prospects supported by the ongoing implementation of structural reforms will provide medium-term support for the ringgit. BNM remains committed to ensuring the orderly functioning of the domestic foreign exchange market.
Credit growth increased amid higher growth in outstanding corporate bonds
Credit to the private non-financial sector grew by 5.5% in the first quarter of 2025 (4Q 2024: 5.2%) amid sustained growth in outstanding loans and higher growth in outstanding corporate bonds. Outstanding business loans expanded by 4.8% (4Q 2024: 5.1%), with higher growth in working capital loans. Additionally, demand for financing remained forthcoming, especially among SMEs, with sustained levels of applications across loan purposes. Household loans grew by 6.0% (4Q 2024: 5.9%) amid broadly steady loan growth across most loan purposes.
Malaysia’s 2025 growth will be affected by the escalation in trade tensions and the heightened policy uncertainties
The rapidly-evolving developments surrounding trade tariffs are expected to affect the global outlook for the rest of the year.
Bank Negara Malaysia Governor Dato’ Seri Abdul Rasheed Ghaffour says, ‘As a small and open economy, Malaysia will inevitably face both direct and indirect impact from these tariffs. Growth of the Malaysian economy is expected to be slightly lower than the earlier forecast of 4.5% - 5.5% in 2025. The high uncertainty surrounding outcomes of trade negotiations and how these will reshape global trade complicates a clear assessment of their impact on growth at this juncture. The new official growth forecast will be released in the near future once there is a greater visibility in these factors.’
Notwithstanding the external risks, growth will continue to be anchored primarily by resilient domestic demand. This provides a strong buffer against external headwinds. Household spending is expected to continue expanding, supported by continued wage and employment growth, particularly within domestic-oriented sectors as well as income-related policy measures. Investment activities will be driven by the continued implementation of multi-year projects across private and public sectors, further realisation of approved investments with a larger share by domestic players and the implementation of catalytic initiatives under the national master plans. Additionally, the continued demand for E&E goods, alongside higher tourist receipts will also provide cushion to growth.
The inflation outlook remains contingent on evolving global conditions and domestic policy measures
In 2025, headline inflation is projected to remain within a moderate range of 2.0 - 3.5%, driven by further moderating global costs and absence of excessive demand. Similar to the economic outlook, any changes to the forecast will be released once there is greater visibility on the external developments. Global commodity prices are expected to be lower, contributing to further downward pressure. The recently introduced wage-related policies will support demand, although the impact on inflation is expected to be limited. In this environment, the overall impact from domestic policy measures is expected to be contained.
See also:
- Publication: Quarterly Bulletin First Quarter 2025
- Press Conference Slides
- Press Conference Presentation Transcript
- Press Conference Video
Bank Negara Malaysia
16 May 2025
© Bank Negara Malaysia, 2025. All rights reserved.
Source: Bank Negara Malaysia
Disclaimer
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