Economic Update
Local
Malaysia 2Q25 GDP Advance Estimate - Growth beats expectations at +4.5% YoY
Mon, 21-Jul-2025 07:52 am
by Research Team • Apex Research

Stronger-than-anticipated economic activity in 2Q25

Malaysia’ economy expanded by 4.5% YoY in 2Q25 (1Q25: +4.4%), according to the advance GDP estimate released by the Department of Statistics Malaysia (DoSM), exceeding both our projection and Bloomberg consensus of 4.2%. On a QoQ basis, the economy grew at 1.0% (1Q25: -3.5%), marking a return to sequential growth following a contraction in the previous quarter. The final 2Q25 GDP data is scheduled for release on 15 Aug 2025 and will offer more detail on the expenditure and production breakdown.

 

Robust services lifted the growth 

On a YoY basis, the performance of supply side components was mixed. Services led the growth, expanding at a faster pace of 5.3% in 2Q25 (1Q25: +5.0%), supported by festive-related spending during Hari Raya celebrations and school holidays. The agriculture sector rose by 2.0% (1Q25: +0.6%), driven by the oil palm sub-sector. Meanwhile, construction sector maintained its double-digit growth at 11.0% (1Q25: +14.2%), driven by continued activity in non-residential buildings, albeit at a slower pace. In contrast, mining sector contracted by 7.4% (1Q25: -2.7%) due to weaker crude oil and natural gas sub-sectors. Growth in the manufacturing sector moderated to 3.8% (1Q25: +4.1%), weighed by a slowdown in trade activity.          

 

Domestic demand expected to hold up, but risks building up             

Private consumption is expected to remain the main growth anchor, supported by a resilient labour market, with the unemployment rate holding at a 10-year low of 3.0% in May 2025. Policy support measures including the RM1,700 minimum wage hike effective February and RM13bn in targeted cash aid (SARA and STR) continue to support lower-income households. Meanwhile, the recovery in tourism will also provide a boost to the broader economy.

 

Investment activity will remain supported by multi-year infrastructure projects such as the ECRL and Pan Borneo Highway, the GEAR-uP programme aimed at mobilising government-linked investments into “high-growth, high-value” industries, and the Johor-Singapore Special Economic Zone (JS-SEZ). The recent BNM 25-bp OPR cut in July will provide further tailwinds to the domestic economy.

 

That said, downside risks are rising. Fiscal reform measures such as SST expansion and potential RON95 fuel subsidy rationalisation in 2H25 could dampen real disposable income and consumer sentiment. Coupled with external uncertainties, these risks may weigh on consumer spending and investment decisions.

 

 

External sector to weigh on growth in 2H25

We think Malaysia’s external sector will face renewed headwinds in 2H25 with the implementation of US tariffs scheduled for August. Higher tariff cost may weigh on US demand for Malaysia’s goods, particularly in the E&E and manufacturing segments. We may also see the frontloading activities begin to wane, which may result in a more pronounced slowdown in the external sector in 2H25. 

 

We continue to monitor the ongoing US-Malaysia trade talks and whether Malaysia can successfully negotiate a lower tariff rate from the currently set 25%. Our base case is a tariff rate between 15-19%, following a likely positive agreement. On a positive note, the sustained demand for E&E alongside the technology upcycle will help cushion the tariff impact, barring potential introduction of new tariffs targeting E&E products.   

 

Keep GDP forecast unchanged for now

Despite the upside surprise in 2Q25, we maintain our full-year GDP growth forecast at 4.2%. Growth is expected to moderate to 4.0% in 2H25 (1H25e: +4.4%) amid softer global trade environment. Risks to the outlook remain tilted to the downside, stemming from the magnitude and timing of fiscal reforms, the final outcome of US tariff negotiations, and the strength of global demand.

Sentiment: Positive
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