Malaysia’s Trade Declines on External Uncertainties

 

Malaysia’s imports declined by 5.9% in August, mainly from reduced intermediate goods which made up over half of total imports. Exports rose modestly by 1.9% to RM131.6 billion, mainly supported by demand for electrical and electronics (E&E), machinery and equipment, optical and scientific instruments, and palm oil and palm-based agricultural products. E&E remained the largest export segment, accounting for nearly half of total exports, underpinned by structural demand for semiconductors as artificial intelligence adoption accelerates. However, the modest overall growth underscores the fragility of global trade conditions, which are likely to persist into year-end.

 

Source: https://en.wikipedia.org

 

Malaysia’s manufacturing sector showed tentative signs of recovery. The S&P Manufacturing Purchasing Managers’ Index edged up to 49.9 in August from 49.7 in July, marking the highest reading since June 2024. Industrial production rose 4.2% y-o-y in July, led by mining (+4.3%) and manufacturing (+4.4%), suggesting a gradual rebound in output. Meanwhile, the services sector continued to support domestic growth. Wholesale and retail trade volume expanding 4.6% y-o-y in July, the fastest pace since March. Key contributors included specialised wholesale and automotive fuel sales, reflecting steady consumer demand and inventory restocking.

 

Headline inflation remained subdued. The Consumer Price Index (CPI) rising slightly to 1.3% in August, driven by the food and services segments. Transport inflation eased further, aided by lower fuel prices and the absence of significant tariff pass-through. Importantly, the electricity tariff rationalisation has not resulted in high inflation. MARC Ratings in its report expects CPI to remain below the 2.0% threshold for 2025.

 

The ringgit stabilised at USDMYR 4.22 by 25 September (end-August: 4.23). This follows the Federal Reserve’s (Fed) quarter-point rate cut, its first since December 2024. During the same time, the Dollar Index (DXY) strengthened 0.8% month-to-date to 98.6, due to slightly positive signs from the labour market and revised 2Q2025 gross domestic product data, rebounding from a more than three-year low of 96.6 on 16 September following the progressively dovish expectations since the Jackson Hole Symposium in August. As of end-September, the markets are pricing in one rate cut over the next 12 months.

 

Malaysia’s capital market recorded softer net foreign outflows of RM354 million in August. A “softer” last quarter could be expected and lower GDP (for 2025) of 4-4.5% p.a. is anticipated. Inflation remains benign for now especially with the RON95 subsidy remains applicable to all Malaysians. Moving forward, there are more uncertainties gathering in the global environment, and 2026 will be a year of reckoning. Holding cash (or its equivalent) will be a good strategy to cushion unforeseen shocks – not the time for more debt!

 

Reference:

Monthly Review: Malaysia’s Trade Declines on External Uncertainties, MARC Ratings Berhad, 2 October 2025