Data jointly released by Bank Negara Malaysia and the Department of Statistics Malaysia on August 15th showed that despite a complex and volatile external environment, Malaysia’s gross domestic product (GDP) grew by 4.4% year-on-year in the second quarter of this year, the same as in the first quarter, thanks to strong domestic demand and continued growth in the services and manufacturing sectors. This continued the solid growth momentum. While slightly lower than the Department of Statistics’ earlier forecast of 4.5%, it was higher than the market expectation of 4.3%. Seasonally adjusted, GDP grew by 2.1% quarter-on-quarter in the second quarter, higher than the 0.7% growth in the first quarter. This growth, achieved amidst significant global economic uncertainty, demonstrates the resilience and stability of the Malaysian economy.
Strong domestic demand expansion is one of the key factors driving economic growth. Data shows that increased household spending is the primary driver of domestic demand growth in Malaysia. Supported by a strong labor market, household consumption grew by 5.3% year-on-year in the second quarter, while public consumption grew by 6.4%. Policy measures implemented by the Malaysian government, such as raising the minimum wage and adjusting civil servant salaries, have further enhanced consumer purchasing power and boosted the consumer market. In addition, increased household consumption also boosted the retail, catering, and entertainment sectors. Private investment and public investment also grew by 10.2% and 6.8%, respectively.
The service and manufacturing sectors performed strongly. Data showed that the service sector grew by 5.1% year-on-year, becoming one of the main drivers of economic growth. The robust performance of sub-sectors such as wholesale and retail, and food and beverages drove growth in the service sector. Despite a slowdown in manufacturing growth, it still achieved a year-on-year increase of 3.7%. Industries such as electrical, electronic, and optical products maintained sustained growth. Furthermore, the agriculture and construction sectors also saw growth of 2.1% and 12.1%, respectively.
The labor market performed stably. As of May 2025, Malaysia’s total employment increased by 2.9% year-on-year to 16.86 million. The unemployment rate remained at 3%, down 5.7% from the same period last year, demonstrating a strong recovery in the labor market. The labor force participation rate also rose to 70.8%, up 0.2 percentage points from 70.6% in the same period last year. A stable labor market not only provided strong support for household consumption but also promoted sustainable economic growth.
While Malaysia’s trade performance faced some challenges in the second quarter, there were some bright spots. Net exports plummeted by 72.6% in the second quarter due to a decline in commodity exports, particularly those related to the mining industry. However, strong exports of electrical and electronic products partially offset the overall decline in exports. Furthermore, uncertainties and risks surrounding the US tariff increase persist, and the full impact will take time to materialize. However, Malaysia’s key role in regional supply chains and trade cooperation with other countries provide some cushion for its export markets.
In terms of prices, inflation remained moderate in Malaysia in the second quarter. Overall inflation fell to 1.3% from 1.5% in the first quarter, while core inflation remained at 1.8%. Lower fuel prices and slower food price increases were the main drivers of the decline. This moderate inflation environment provides stability for consumer purchasing power and provides room for monetary policy adjustments. The Bank of Malaysia expects overall inflation to remain moderate this year, ranging from 1.5% to 2.3%.
Analysts point out that the Malaysian economy will continue to face challenges in the second half of this year. Economists anticipate a further slowdown in exports, leading to a decline in economic growth. However, continued growth in domestic demand and stable investment activity will provide some support to the economy. Furthermore, the recovery of the tourism industry and the advancement of infrastructure projects will inject new impetus into the economy. Bank Negara Malaysia stated that while economic growth is driven by strong household spending and positive labor market conditions, the uncertainty surrounding the US government’s tariff increase makes forecasting challenging.