Malaysia: 1Q25 advance GDP flags further moderation

• Based on the latest 1Q25 advance GDP release, Malaysia’s economy grew by 4.4% y/y last quarter, extending its moderation for three quarters in a row (4Q24: 5.0%, 3Q24: 5.4% and 2Q24: 5.9%) and marking the slowest growth in a year. The outturn undershot our preliminary forecast and Bloomberg consensus of 4.8%. The 1Q25 final GDP data will be released on 16 May, together with the 1Q25 current account numbers.

• The deceleration in 1Q25 advance GDP growth was primarily due to a larger decline in the mining & quarrying sector amid a softer expansion across services, manufacturing, and construction industries. The agriculture sector staged a modest growth rebound to 0.7% but insufficient to cushion the drag from other sectors. Decent festive demand and disbursement of government’s cash handouts were key factors of holding up overall GDP growth momentum particularly for the services sector in 1Q25.

• Beyond 1Q25, Malaysia’s growth outlook will be contested by the impact of intensifying global trade war, risks of a hard landing in major economies, and greater financial volatility amid ongoing domestic fiscal reform agenda. We have, on 4 Apr, cut our 2025 GDP growth forecast for Malaysia to 4.0% (from 4.7%) after the US’ reciprocal tariff announcement (details in report). That said, our base case remains that there is no outright recession, Malaysia’s inflationary pressure will be contained, and domestic financial stability is preserved despite volatile global markets. This allows Bank Negara Malaysia (BNM) to keep a wait-and-see approach, leaving the overnight policy rate (OPR) unchanged at 3.00% for now.

1Q25 advance GDP hits slowest pace in a year

Based on the latest 1Q25 advance GDP release, Malaysia’s economy grew by 4.4% y/y last quarter, extending its moderation for three quarters in a row (4Q24: 5.0%, 3Q24: 5.4% and 2Q24: 5.9%) and marking the slowest growth in a year. The outturn undershot our preliminary forecast and Bloomberg consensus of 4.8%. On a nonseasonally adjusted basis, real GDP contracted by 3.7% q/q in 1Q25 (4Q24: +2.7%), the most since 1Q23. The 1Q25 final GDP data will be released on 16 May, together with the 1Q25 current account numbers.

The deceleration in 1Q25 advance GDP growth was primarily due to a larger decline in the mining & quarrying sector amid a softer expansion across services, manufacturing, and construction industries.

• Services sector registered a 5.2% y/y gain (4Q24: +5.5%), which was primarily underpinned by consumer-related services activities such as wholesale & retail trade, transport & storage, and information & communication sub-sectors. This came on decent festive demand and disbursement of government’s cash handouts during the quarter.

• Manufacturing sector growth eased to 4.2% (from 4.4% in 4Q24), supported by higher export-oriented production including electronics & electrical (E&E) and optical products, as well as refined petroleum, chemical, rubber & plastic products. Vegetable, animal oils & fats and food processing output also recorded an improvement last quarter.

• Construction sector recorded a smaller double-digit growth of 14.5% (4Q24: +20.7%) as a result of moderate growth across all segments, led by specialized construction activities and residential buildings.

• Agriculture sector staged a marginal positive growth rebound to 0.7% (4Q24: -0.5%), mainly driven by increased output of fishing & other agriculture subsectors, which helped to offset the persistent weakness in oil palm sub-segment.

• Mining & quarrying sector contracted for the third consecutive quarter and at a steeper pace of 4.9% (4Q24: -0.9%). It also marked the biggest decline since 4Q20, as a result of lower production of both crude oil & condensate and natural gas.

Trade war fallout dims growth outlook

Beyond 1Q25, Malaysia’s growth outlook will be contested by the impact of intensifying global trade war, risks of a hard landing in major economies, and greater financial volatility amid ongoing domestic fiscal reform agenda. We have, on 4 Apr, cut our 2025 GDP growth forecast for Malaysia to 4.0% (from 4.7%) after the US’ reciprocal tariff announcement (details in report). Export-oriented manufacturing, construction, private investment, and business-related services (i.e. logistic & storage, wholesale, and credit financing) activities are expected to bear the brunt of the potential fallout from the US tariffs. The Malaysian authorities have also indicated that they are assessing the impact of the US levies and reviewing their economic growth forecast of 4.5%-5.5% for this year. However, any revision in the official growth target will only be made after the authorities gather more information and certainty on the tariff situation.

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Julia Goh
Senior Economist
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Loke Siew Ting
Economist
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