Summary

• 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 a high base effect and weaker demand for crude oil and natural gas. MARC Ratings upgraded its GDP growth forecast for 2026 to 4.6% from 4.3%, supported by robust domestic demand and stronger external demand given Malaysia’s strategic position.
• 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%, aligning with MARC Ratings’ forecast. 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.
• On 22 January, Bank Negara Malaysia (BNM) maintained the Overnight Policy Rate (OPR) at 2.75%, citing firm economic growth and moderate inflation prospects for 2026. Given the strong GDP growth momentum, MARC Ratings does not anticipate an OPR cut in 2026, which is expected to be supportive of the ringgit. By late January, the ringgit had approached MARC Ratings’ projection of 3.93 USDMYR, strengthening sooner than anticipated. This was anchored by Malaysia’s resilient economic fundamentals, supported by a sharp decline in the US dollar. Meanwhile, foreign portfolio flows moderated in December, as bond inflows eased 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%).
• MGS yields rose marginally across the curve month-to-date (MTD) 26 January, by 3–7 bps. The mild pickup reflected a higher term premium amid geopolitical tensions, particularly the US–Venezuela conflict and President Donald Trump’s proposal on acquiring Greenland. A modest inflation risk premium also contributed to the yield uptick, as Malaysia’s headline Consumer Price Index (CPI) edged higher to 1.6% in December from 1.4% in November. However, despite these external pressures, steady foreign bond inflows and improving prospects for the Malaysian Government Securities – US Treasury (MGS–UST) spread helped anchor yields. On January 28, the Federal Reserve (Fed) maintained the Federal Funds Rate at an upper bound of 3.75%, noting that inflation remains a concern while the labour market showed some signs of stabilisation. MARC Ratings projects MGS yields to trade between 3.35% and 3.40% by year end while the ringgit is expected to consolidate within a range of 3.88–3.98 USDMYR in the near term.