Malaysia's economic landscape in the first quarter of 2025 presents a nuanced picture beyond headline figures. While the economy expanded by 4.4%, it was driven by specific sectors.
Bank Negara Malaysia Governor Dato' Seri Abdul Rasheed Ghaffour reported that this growth was thanks to resilient domestic demand and a steady investment environment, even as external challenges persisted.
Although export growth, particularly in the mining sector, slowed due to global uncertainties, robust domestic consumption and sustained business activity continued to provide a firm foundation for economic stability.
While escalating global trade tensions pose risks to Malaysia's outlook, the domestic economy remains anchored by strong internal fundamentals. Rasheed noted that although a revision to the growth forecast is forthcoming, domestic demand is expected to remain the primary driver of expansion.
Investor appetite remained healthy, especially from domestic sources. The ongoing implementation of multi-year projects and the realisation of approved investments supported capital expenditure, evidenced by strong imports of capital goods.
Business financing activity was also buoyant. Growth in working capital loans and higher corporate bond issuance pointed to underlying confidence among Malaysian firms.
Inflation trends were mixed. Headline inflation eased to 1.5%, primarily due to lower utility costs. Meanwhile, core inflation edged up to 1.9%, largely driven by rental price increases. Nevertheless, overall price pressures remained below long-term averages, aligning with expectations of a benign inflation environment in 2025 amid cooling global commodity prices.
Malaysia's monetary policy remains geared towards supporting sustainable growth while maintaining price stability. Despite fluctuations in inflation and global economic data, the Overnight Policy Rate (OPR) has been held steady at 3%.
"At the current 3% OPR, we believe the policy stance is consistent with the near-term outlook for inflation and growth," said Rasheed. "We're not looking to pre-empt with abrupt moves, but to maintain steady support for the economy."
Currency markets have also responded positively. The Malaysian ringgit held firm against major currencies, backed by stable macroeconomic fundamentals and ongoing structural reforms, even as external uncertainties, particularly surrounding US trade policies, weighed on sentiment.
Despite downside risks from both global and domestic fronts, Malaysia's diversified export base, sound household balance sheets, and sustained investment activity offer a buffer against external shocks. Policymakers remain alert yet optimistic, with hopes that favourable trade negotiations and a rebound in tourism could further bolster growth prospects.
"Malaysia is facing external headwinds from a position of strength," Rasheed concluded. "We achieved solid growth of 5.1% last year, driven by resilient domestic demand supported by household spending and investment. We expect this momentum to continue."
