Summary

• Malaysia’s advance estimates indicate stronger-than-expected gross domestic product (GDP) growth of 5.2% in 3Q2025 (2Q2025: 4.4%), exceeding the market consensus of 4.2%. Services grew 5.1% (2Q2025: 5.1%) on resilient consumption, manufacturing accelerated to 4.0% (2Q2025: 3.7%), and mining rebounded sharply to 10.9% (2Q2025: –5.2%) on stronger oil and gas output. Construction remained robust, expanding 11.2% (2Q2025: 12.1%), while agriculture moderated to 0.4% (2Q2025: 2.1%) amid weaker commodity production. Following the Trump–Xi meeting, near-term risks appear more contained, providing greater policy clarity and a steadier external backdrop through early 2026, pending further renegotiations.
• Malaysia’s inflation edged up to 1.5% in September (Aug: 1.3%), driven by broad-based price increases across sectors. The housing and utilities sector recorded the largest gain, rising to 1.7% (Aug: 1.2%) following water tariff adjustments effective 1 September in six states. This also contributed to a slight uptick in food and beverage prices, which rose to 2.1% (Aug: 2.0%). Transport costs increased to 0.7% (Aug: 0.2%), reflecting higher vehicle and equipment prices. Looking ahead, inflation is expected to remain manageable, supported by the Budi Madani RON95 (BUDI95) fuel subsidy, which covers over 90% of consumers. MARC Ratings maintains its inflation forecasts at 1.4% for 2025 and 1.6% for 2026.
• In September, foreign portfolio flows remained negative with RM6.8 billion in outflows (Aug: –RM0.4 billion), driven solely by bond sales that lowered foreign Malaysian Government Securities/ Government Investment Issues (MGS/GII) holdings to 20.9% (Aug: 21.3%). Net foreign bond outflows totalled RM6.8 billion (Aug: +RM3.0 billion). The reversal reflected the announcement of J.P. Morgan’s upcoming GBI-EM index reweighting, heightened geopolitical tensions in the Middle East, and safe-haven shifts amid concerns over a potential US government shutdown. Looking ahead, deeper Federal Funds Rate (FFR) easing and a firmer ringgit, which we project to trade around 4.15 USDMYR by end-2025, should gradually re-anchor demand. Furthermore, recent developments under the US–Malaysia Reciprocal Trade Agreement, alongside Malaysia’s steady path toward its 3.8% fiscal deficit target by year-end amid structural reforms, is likely to reinforce investor confidence and support demand for Malaysian assets.
• As of 21 October, most MGS yields edged higher month-to-date (MTD), with the 10-year yield closing at 3.49% (Sep: 3.46%). Domestically, higher inflation expectations following the September print of 1.5% (Aug: 1.3%) and soft auction demand added upward pressure on yields. Externally, residual foreign bond outflows from September, coupled with renewed global risk-off sentiment, also affected sentiment, although further FFR easing and a firmer ringgit should anchor the 10-year yield around 3.40% by year-end. On 29 October, the Federal Reserve (Fed) lowered the FFR from an upper bound of 4.25% to 4.00%.