ECONOMY / KEY INFRASTRUCTURE UPDATES
- Malaysia’s economy grew by 4.4% in 1Q 2025, driven by sustained household spending, expansion in investment activities, and growth in external demand (1Q 2024: 4.2%).
- Malaysia’s 2025 Gross Domestic Product (GDP) growth is now expected to be lower due to new U.S. tariffs, with the International Monetary Fund (IMF) cutting its forecast from 4.7% to 4.1%, and Bank Negara’s earlier 4.5%–5.5% target is now unlikely.
- The headline inflation rate for 1Q 2025 has eased to 1.5% (1Q 2024: 1.7%). The stabilisation of price growth in the Housing, Water, Electricity, Gas & Other Fuels, Transport & Health sectors mainly drove this decline.
- Inflation is expected to grow from 2.0% to 3.5% in 2025, driven by the following factors that will be implemented throughout the year:
- Targeted subsidies for RON95 petrol (June 2025);
- An expansion of the Sales and Services Tax (SST) (June 2025);
- Increase in electricity tariff (July 2025);
- Implementation of a minimum wage of RM1,700 per month (February 2025*) and mandatory EPF contribution for foreign workers (4Q 2025);
- Newly imposed tariff on certain Malaysian goods exports to the U.S.
- The labour market continues to improve in 1Q 2025, with the unemployment rate dropping to 3.1% (1Q 2024: 3.3%), the lowest post-pandemic level. This was driven by higher employment growth, boosting economic growth and consumer confidence.
- The Overnight Policy Rate (OPR) and base rate are expected to stay at 3.00% and 3.71% in 2025 to support growth, but a 25-basis-point cut is possible depending on the economic growth from 2Q 2025 onwards, the trajectory of inflation, and developments in U.S. – Malaysia trade talks.
- Malaysia is diversifying its export markets to reduce reliance on the U.S. and minimise the impact of the newly imposed tariff.
- Despite these challenges, Malaysia’s economy is expected to remain resilient, with ongoing policy adjustments aimed at sustaining growth, managing inflation, and strengthening its global trade position.
