Malaysia is poised for stronger 3Q2025 growth, with advance estimates pointing to a 5.2% gross domestic product (GDP) growth, above the 4.2% consensus. The services sector held steady at 5.1% (2Q2025: 5.1%) on resilient household spending and retail activity, while manufacturing accelerated to 4.0% (2Q2025: 3.7%). The mining sector, having weighed on growth earlier in the year, rebounded to 10.9% (2Q2025: -5.2%) on firmer crude oil and natural gas output. The upside print may keep full-year GDP growth tracking towards the upper end of Bank Negara Malaysia’s 4.0%–4.8% projected range, supported by resilient domestic demand and a firmer external backdrop. 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. In parallel, the US–Malaysia Reciprocal Trade Agreement, signed at the 47th ASEAN Summit, is expected to strengthen Malaysia’s external competitiveness through improved US market access and deeper participation in high-value industries. Together with sizeable commercial agreements, these developments should bolster foreign direct investment inflows, enhance supply chain resilience, and reinforce Malaysia’s export growth trajectory.
Malaysia’s exports accelerated to 12.2% in September (Aug: 1.7%), spearheaded by higher shipments to most major trading partners. Exports to ASEAN expanded by 19.2% (Aug: 3.8%), while export growth to China and Taiwan moderated to 2.9% (Aug: 10.4%) and 8.6% (Aug: 32.7%), driven by strong demand for electrical and electronic (E&E) products, machinery and equipment, and petroleum. Exports to the US rebounded sharply, rising 24.4% (Aug: -16.7%). Headline inflation inched up to 1.5% in September (Aug: 1.3%), with broad-based increases across most major categories. Looking ahead, inflation is expected to remain manageable, supported by the Budi Madani RON95 (BUDI95) fuel subsidy, which shields over 90% of consumers from price pressures. Year-to-date (YTD) as of September, inflation has averaged 1.4%. Accordingly, MARC Ratings projects inflation at 1.4% for 2025 and 1.6% for 2026.
The ringgit eased to 4.23 USDMYR as of 22 October, down by 0.5% month-to-date (MTD), as the prolonged US government shutdown boosted safe-haven demand and lifted the greenback. Despite the temporary weakening, the ringgit remained Asia’s second-best performing currency as of mid-October, appreciating by 5.8% YTD against the dollar. Looking ahead, MARC Ratings projects the ringgit to appreciate gradually to 4.15 USDMYR by end-2025 and 3.93 USDMYR by mid-2026, supported by anchored inflation expectations, a two-thirds probability of another rate cut by the Federal Reserve (Fed) in December based on market expectations as of 31 October, a softer Dollar Index, and a steadier external trade environment. Of note, on 29 October, the Fed lowered the Federal Funds Rate (FFR) from an upper bound of 4.25% to 4.00%.
In September, total foreign portfolio flows remained negative, with net outflows of RM6.8 billion (Aug: -RM0.4 billion), driven entirely by bond outflows. Net foreign bond outflows totalled RM6.8 billion (Aug: +RM3.0 billion), the largest outflow since October 2024. 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 FFR easing and a firmer ringgit, projected to trade around 4.15 USDMYR by end-2025, should gradually re-anchor demand for domestic assets. Additionally, recent developments under the US–Malaysia Reciprocal Trade Agreement are expected to bolster sentiment towards high-tech and E&E-linked domestic equities.
As of 21 October, most Malaysian Government Securities (MGS) yields edged higher 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 that has prompted a tilt towards US Treasuries (UST), kept upward pressure on yields. Looking ahead, expectations of deeper FFR cuts should narrow MGS–UST spreads and support local bonds, with the 10-year MGS yield projected to hover around 3.40% by year-end, supported by a benign Overnight Policy Rate trajectory, contained inflation, and a firmer ringgit projected to trade at 4.15 USDMYR by year-end and 3.93 USDMYR by mid-2026.