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Economic and Financial Developments in Malaysia in the Second Quarter of 2025
Aug 15, 2025
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Embargo : Not for publication or broadcast before 1200 on Friday, 15 August 2025
15 Aug 2025
See also:
Bank Negara Malaysia
15 August 2025
© Bank Negara Malaysia, 2025. All rights reserved.
Source: Bank Negara Malaysia
Disclaimer
The information provided in this report is of a general nature and has been prepared for information purposes only. It is not intended to constitute research or as advice for any investor. The information in this report is not and should not be construed or considered as an offer, recommendation or solicitation for investments. Investors are advised to make their own independent evaluation of the information contained in this report, consider their own individual investment objectives, financial situation and particular needs and should seek appropriate personalised financial advice from a qualified professional to suit individual circumstances and risk profile. The information contained in this report is prepared from data believed to be correct and reliable at the time of issuance of this report. While every effort is made to ensure the information is up-to-date and correct, Bond and Sukuk Information Platform Sdn Bhd (“the Company”) does not make any guarantee, representation or warranty, express or implied, as to the adequacy, accuracy, completeness, reliability or fairness of any such information contained in this report and accordingly, neither the Company nor any of its affiliates nor its related persons shall not be liable in any manner whatsoever for any consequences (including but not limited to any direct, indirect or consequential losses, loss of profits and damages) of any reliance thereon or usage thereof.
15 Aug 2025
The Malaysian economy grew by 4.4% in the second quarter of 2025
The Malaysian economy expanded by 4.4% in the second quarter of 2025 (1Q 2025: 4.4%), driven by robust domestic demand. Household spending was higher amid positive labour market conditions and income-related policy measures, including the upward revision of minimum wage and civil servant salaries. Of significance, both private and public investments recorded stronger expansion, supported by the realisation of new and existing projects. In the external sector, export growth was slower due mainly to lower commodities-related exports. This was partially offset by continued electrical and electronics (E&E) exports and robust tourism activity. At the same time, import growth was higher, driven by strong demand for capital goods, reflecting higher investment activities.
On the supply side, growth was driven by the services and manufacturing sectors. The services sector was supported by consumer-related and Government services. Steady growth in domestic-oriented clusters underpinned the performance in the manufacturing sector. Overall growth was weighed down by a contraction in the mining sector amid lower commodities production. On a quarter-on-quarter, seasonally-adjusted basis, growth expanded by 2.1% (1Q 2025: 0.7%).
Headline and core inflation remained moderate during the quarter
Headline inflation moderated to 1.3%, while core inflation remained stable at 1.8% (1Q 2025: 1.5% and 1.8%, respectively). The moderation was largely due to lower prices for fuel such as RON97 petrol and diesel (-0.6%; 1Q 2025: 0.3%) and slower price increases for food-related items (2.2%; 1Q 2025: 2.5%), particularly fresh food and food away from home. This was partly offset by a slower price decline for mobile communication services, averaging at -12.1% (1Q 2025: -13.5%). Inflation pervasiveness, measured by the share of Consumer Price Index (CPI) items recording monthly price increases, experienced a slight decline amid softer global commodity prices (41.8%; 1Q 2025: 43.3%). Nonetheless, it remained broadly in line with the long-term average for the second quarter (2Q 2011-2019: 43.9%).
Ringgit appreciated against currencies of major trading partners in the second quarter of 2025
In the second quarter of 2025, the ringgit’s nominal effective exchange rate (NEER) appreciated by 1.5% against the currencies of Malaysia’s major trading partners. The ringgit also strengthened by 5.1% against the US dollar, primarily driven by broad US dollar weakness. This was driven by expectations of more subdued US economic growth, rising uncertainties over US trade policies and growing concerns over US fiscal sustainability. Furthermore, the ongoing coordinated efforts by the Government and BNM, which include proactive engagements with corporates and investors, have encouraged healthy two-way flows in the domestic foreign exchange market observed during the quarter.
The ringgit exchange rate will continue to be influenced by external factors. Notwithstanding, Malaysia's favourable economic prospects and domestic structural reforms, complemented by ongoing initiatives to encourage flows, will continue to provide support to the ringgit. BNM remains committed to ensuring the orderly functioning of the domestic foreign exchange market.
Broadly sustained credit growth amid steady growth in outstanding loans
Credit to the private non-financial sector expanded by 5.2% in the second quarter (1Q 2025: 5.4%). Outstanding corporate bond growth moderated, (4.3%; 1Q 2025: 5.3%) while growth in outstanding loans remained steady at 5.5% (1Q 2025: 5.5%). Business loans expanded by 4.5% (1Q 2025: 4.6%), amid broadly stable loan growth for both working capital and investment-related[1] purposes. Additionally, demand for financing among businesses was sustained with higher applications, particularly for investment-related loans. Household loans grew by 6% (1Q 2025: 6%), with sustained loan growth across most purposes.
Similar to other countries, Malaysia’s 2025 growth will be affected by tariff outcomes from trade negotiations
BNM expects developments surrounding trade tariffs to affect the global and domestic outlook for the rest of the year.
Bank Negara Malaysia Governor Dato’ Sri Abdul Rasheed Ghaffour says, ‘The external environment remains challenging. Uncertainty surrounding tariffs continues to linger and the impact will take time to fully materialise. Nonetheless, Malaysia is facing these challenges from a position of strength. Our economy remains on solid footing, supported by resilient domestic demand, continued demand for E&E goods, and a diversified export structure. These fundamentals, alongside continued structural reforms, ensure that Malaysia is well-positioned to navigate the evolving global landscape.’
Notwithstanding the external risks, economic growth is firmly supported by resilient domestic demand, serving as a buffer against global headwinds. Employment and wage growth within domestic-oriented sectors and income-related policy measures will continue to support household spending. The expansion in investment activity will be sustained by several factors. This includes the progress of infrastructure projects, continued high realisation of approved private investments and implementation of national master plans. Malaysia’s export prospects could be raised by favourable outcomes from remaining trade negotiations, pro-growth policies in major economies, and robust tourism activity. The steady rollout of structural reforms, such as the implementation of announced national master plans and fiscal reform measures, is critical to boost our resilience against future shocks.
Headline inflation is expected to average between 1.5% – 2.3% in 2025 amid moderate cost and demand conditions
Headline inflation is projected to remain moderate, averaging 1.5% – 2.3% in 2025. Notably, the headline inflation forecast range for the year was revised lower following the more moderate demand and cost outlook since 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.
[1] Comprises loans for the purchase of non-residential properties, residential properties for business use, fixed assets as well as for construction activities.
The Malaysian economy expanded by 4.4% in the second quarter of 2025 (1Q 2025: 4.4%), driven by robust domestic demand. Household spending was higher amid positive labour market conditions and income-related policy measures, including the upward revision of minimum wage and civil servant salaries. Of significance, both private and public investments recorded stronger expansion, supported by the realisation of new and existing projects. In the external sector, export growth was slower due mainly to lower commodities-related exports. This was partially offset by continued electrical and electronics (E&E) exports and robust tourism activity. At the same time, import growth was higher, driven by strong demand for capital goods, reflecting higher investment activities.
On the supply side, growth was driven by the services and manufacturing sectors. The services sector was supported by consumer-related and Government services. Steady growth in domestic-oriented clusters underpinned the performance in the manufacturing sector. Overall growth was weighed down by a contraction in the mining sector amid lower commodities production. On a quarter-on-quarter, seasonally-adjusted basis, growth expanded by 2.1% (1Q 2025: 0.7%).
Headline and core inflation remained moderate during the quarter
Headline inflation moderated to 1.3%, while core inflation remained stable at 1.8% (1Q 2025: 1.5% and 1.8%, respectively). The moderation was largely due to lower prices for fuel such as RON97 petrol and diesel (-0.6%; 1Q 2025: 0.3%) and slower price increases for food-related items (2.2%; 1Q 2025: 2.5%), particularly fresh food and food away from home. This was partly offset by a slower price decline for mobile communication services, averaging at -12.1% (1Q 2025: -13.5%). Inflation pervasiveness, measured by the share of Consumer Price Index (CPI) items recording monthly price increases, experienced a slight decline amid softer global commodity prices (41.8%; 1Q 2025: 43.3%). Nonetheless, it remained broadly in line with the long-term average for the second quarter (2Q 2011-2019: 43.9%).
Ringgit appreciated against currencies of major trading partners in the second quarter of 2025
In the second quarter of 2025, the ringgit’s nominal effective exchange rate (NEER) appreciated by 1.5% against the currencies of Malaysia’s major trading partners. The ringgit also strengthened by 5.1% against the US dollar, primarily driven by broad US dollar weakness. This was driven by expectations of more subdued US economic growth, rising uncertainties over US trade policies and growing concerns over US fiscal sustainability. Furthermore, the ongoing coordinated efforts by the Government and BNM, which include proactive engagements with corporates and investors, have encouraged healthy two-way flows in the domestic foreign exchange market observed during the quarter.
The ringgit exchange rate will continue to be influenced by external factors. Notwithstanding, Malaysia's favourable economic prospects and domestic structural reforms, complemented by ongoing initiatives to encourage flows, will continue to provide support to the ringgit. BNM remains committed to ensuring the orderly functioning of the domestic foreign exchange market.
Broadly sustained credit growth amid steady growth in outstanding loans
Credit to the private non-financial sector expanded by 5.2% in the second quarter (1Q 2025: 5.4%). Outstanding corporate bond growth moderated, (4.3%; 1Q 2025: 5.3%) while growth in outstanding loans remained steady at 5.5% (1Q 2025: 5.5%). Business loans expanded by 4.5% (1Q 2025: 4.6%), amid broadly stable loan growth for both working capital and investment-related[1] purposes. Additionally, demand for financing among businesses was sustained with higher applications, particularly for investment-related loans. Household loans grew by 6% (1Q 2025: 6%), with sustained loan growth across most purposes.
Similar to other countries, Malaysia’s 2025 growth will be affected by tariff outcomes from trade negotiations
BNM expects developments surrounding trade tariffs to affect the global and domestic outlook for the rest of the year.
Bank Negara Malaysia Governor Dato’ Sri Abdul Rasheed Ghaffour says, ‘The external environment remains challenging. Uncertainty surrounding tariffs continues to linger and the impact will take time to fully materialise. Nonetheless, Malaysia is facing these challenges from a position of strength. Our economy remains on solid footing, supported by resilient domestic demand, continued demand for E&E goods, and a diversified export structure. These fundamentals, alongside continued structural reforms, ensure that Malaysia is well-positioned to navigate the evolving global landscape.’
Notwithstanding the external risks, economic growth is firmly supported by resilient domestic demand, serving as a buffer against global headwinds. Employment and wage growth within domestic-oriented sectors and income-related policy measures will continue to support household spending. The expansion in investment activity will be sustained by several factors. This includes the progress of infrastructure projects, continued high realisation of approved private investments and implementation of national master plans. Malaysia’s export prospects could be raised by favourable outcomes from remaining trade negotiations, pro-growth policies in major economies, and robust tourism activity. The steady rollout of structural reforms, such as the implementation of announced national master plans and fiscal reform measures, is critical to boost our resilience against future shocks.
Headline inflation is expected to average between 1.5% – 2.3% in 2025 amid moderate cost and demand conditions
Headline inflation is projected to remain moderate, averaging 1.5% – 2.3% in 2025. Notably, the headline inflation forecast range for the year was revised lower following the more moderate demand and cost outlook since 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.
[1] Comprises loans for the purchase of non-residential properties, residential properties for business use, fixed assets as well as for construction activities.
See also:
- Publication: Quarterly Bulletin Second Quarter 2025
- Press Conference Slides
- Press Conference Presentation Transcript
- Press Conference Video
Bank Negara Malaysia
15 August 2025
© Bank Negara Malaysia, 2025. All rights reserved.
Source: Bank Negara Malaysia
Disclaimer
The information provided in this report is of a general nature and has been prepared for information purposes only. It is not intended to constitute research or as advice for any investor. The information in this report is not and should not be construed or considered as an offer, recommendation or solicitation for investments. Investors are advised to make their own independent evaluation of the information contained in this report, consider their own individual investment objectives, financial situation and particular needs and should seek appropriate personalised financial advice from a qualified professional to suit individual circumstances and risk profile. The information contained in this report is prepared from data believed to be correct and reliable at the time of issuance of this report. While every effort is made to ensure the information is up-to-date and correct, Bond and Sukuk Information Platform Sdn Bhd (“the Company”) does not make any guarantee, representation or warranty, express or implied, as to the adequacy, accuracy, completeness, reliability or fairness of any such information contained in this report and accordingly, neither the Company nor any of its affiliates nor its related persons shall not be liable in any manner whatsoever for any consequences (including but not limited to any direct, indirect or consequential losses, loss of profits and damages) of any reliance thereon or usage thereof.
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