The Federation of Malaysian Manufacturing (FMM) has cautioned that Malaysia’s economy will face slower growth in the second half of 2025 as both global and domestic challenges weigh on performance.
According to the IMF, global growth is projected at 3.0% in 2025, while the World Bank offers a more cautious estimate of 2.3% – the weakest pace since 2008 outside global recessions. Nearly 70% of economies have seen downward revisions, highlighting the fragility of the recovery.
Malaysia’s Performance in 1H 2025
Malaysia recorded 4.4% GDP growth in Q2 2025, driven mainly by the services (5.1%), manufacturing (3.7%), and construction (12.1%) sectors. Domestic demand, boosted by wage increases and stronger labour markets, was the key driver. Private consumption expanded as unemployment fell to 3.0%, with both nominal and real wages rising.
Investment also strengthened, with gross fixed capital formation expanding by 12.1%, compared to 9.7% in Q1. Inflationary pressures eased, as headline inflation fell to 1.3%, and the CPI dropped to 1.1% by June. The ringgit also gained 5.1%, supported by reforms, fiscal consolidation, and investor confidence.
Headwinds for 2H 2025
Looking ahead, FMM projects Malaysia’s growth to moderate to 3.5–3.6% in 2H 2025. Manufacturers and SMEs are expected to face rising business costs from subsidy rationalisation, expanded SST, utility tariffs, and wage adjustments.
Global uncertainties, including the possibility of a U.S. recession (30–40% probability), China’s weaker growth forecast of 4.2%, and conflicts pushing oil and transport costs higher, are likely to dampen export demand.
SMEs, in particular, will feel the pressure from thinner profit margins and lower demand. Policymakers must ensure careful execution of reforms to sustain investor confidence and economic resilience.
Resilience Through Domestic Demand
Despite the headwinds, domestic demand will remain a cushion. Minimum wage hikes, targeted cash transfers, and multi-year national projects will help sustain household spending and investment.
FMM emphasised that Malaysia’s steady domestic demand, moderating inflation, and robust labour market can provide resilience, but only if reforms are carried out effectively.
