Malaysia’s Growth Exceeds Expectations

 

According to MARC Ratings, Malaysia ended 2025 on a strong footing, with its 4Q2025 gross domestic product (GDP) advance estimate rising by 5.7%, bringing full-year growth to an estimated 4.9%, above consensus expectations. Growth in 4Q2025 was broad-based, led by services (5.4%; 3Q2025: 5.0%) and manufacturing (6.0%; 3Q2025: 4.1%) due to strong external demand for electrical and electronic (E&E) products. Agriculture rebounded to 5.1% (3Q2025: 0.4%) on a low base effect and stronger palm oil demand, while construction expanded at 11.9% (3Q2025: 11.8%), supported by ongoing public and private investment projects. Meanwhile, mining moderated to 1.1% (3Q2025: 9.7%) due to weaker demand for crude oil and natural gas. Going forward, the strong growth momentum is expected to persist, supported by robust domestic and external demand despite renewed geopolitical tensions. MARC Ratings projects economic growth for 2026 at 4.6%.

Source: https://en.wikipedia.org

In 2025, Malaysia’s headline inflation edged up further to 1.6% in December, from 1.4% in November, bringing the yearly average to 1.4%. The increase was largely driven by alcoholic beverages and tobacco, where inflation rose to 2.5% (Nov: 2.4%). The rise in this category was due to a higher excise duty imposed by the government. The second factor driving the inflation rate is the housing and utilities segment which inched up to 0.9% (Nov: 0.7%) alongside clothing and footwear by 0.1% (Nov: -0.1%). These increases, however, were partially offset by stable inflation in key sub-sectors such as food and beverages (Dec: 1.5%; Nov: 1.5%) and a deceleration in transportation to 0.1% (Nov: 0.2%) reflecting lower global oil prices. While inflation remains stable for now, renewed geopolitical tensions could disrupt supply chains and add to inflationary pressures. 

Bank Negara Malaysia (BNM) maintained the Overnight Policy Rate (OPR) at 2.75% recently, cited firm economic growth and moderate inflation prospects as reasons to retain the rate. 

Meanwhile, foreign portfolio flows remained positive in December, albeit at a slower pace, as bond inflows moderated to RM3.0 billion from RM6.1 billion in November, while equities recorded continued outflows of RM1.9 billion (Nov: -RM1.2 billion). As a result, foreign holdings of Malaysian Government Securities (MGS) and Government Investment Issues (GII) edged higher to 21.6% of the market (Nov: 21.4%). By late January, the ringgit had approached 3.93 USDMYR, strengthening sooner than anticipated. The ringgit may strengthen and remain within a 3.80-3.90 USDMYR range in the near term. (Blog writer’s estimate!) 

Unless there are adverse geopolitical tensions (like China-Taiwan), new tariffs or sanctions and domestic political instability, the prospects remain positive for Malaysia in 2026. 

Reference:

Monthly Review: Malaysia’s Growth Exceeds Expectations, Press Announcement, MARC Ratings Berhad, 30 January 2026