Malaysia’s imports declined by 5.9% in August, mainly from reduced intermediate goods which made up over half of total imports, while exports rose modestly by 1.9% to RM131.6 billion, mainly supported by demand for electrical and electronics (E&E), machinery and equipment, optical and scientific instruments, and palm oil and palm-based agricultural products. E&E remained the largest export segment, accounting for nearly half of total exports, underpinned by structural demand for semiconductors as artificial intelligence adoption accelerates. However, the modest overall growth underscores the fragility of global trade conditions, which are likely to persist into year-end.

Malaysia’s manufacturing sector showed tentative signs of recovery. The S&P Manufacturing Purchasing Managers’ Index edged up to 49.9 in August from 49.7 in July, marking the highest reading since June 2024 and signalling cautious optimism. Industrial production rose 4.2% y-o-y in July, led by mining (+4.3%) and manufacturing (+4.4%), suggesting a gradual rebound in output. Meanwhile, the services sector continued to support domestic growth, with wholesale and retail trade volume expanding 4.6% y-o-y in July, the fastest pace since March. Key contributors included specialised wholesale and automotive fuel sales, reflecting steady consumer demand and inventory restocking.

Headline inflation remained subdued, with the Consumer Price Index (CPI) rising slightly to 1.3% in August, driven by the food and services segments. Transport inflation eased further, aided by lower fuel prices and the absence of significant tariff pass-through. Importantly, the electricity tariff rationalisation has not resulted in high inflation, in line with expectations. MARC Ratings expects CPI to remain below the 2.0% threshold for the year, forecasting 1.4% for 2025.

The ringgit stabilised at USDMYR 4.22 by 25 September (end-August: 4.23), following the Federal Reserve’s (Fed) quarter-point rate cut, its first since December 2024. During the same time, the Dollar Index (DXY) strengthened 0.8% month-to-date to 98.6, due to slightly positive signs from the labour market and revised 2Q2025 gross domestic product data, rebounding from a more than three-year low of 96.6 on 16 September following the progressively dovish expectations since the Jackson Hole Symposium in August. As of end-September, the markets are pricing in one rate cut over the next 12 months, and the Fed’s dot plot indicates two more cuts this year.

Malaysia’s capital market recorded softer net foreign outflows of RM354 million in August, as RM3.0 billion in bond inflows offset RM3.4 billion in equity outflows. Bond demand was supported by narrowing rate differentials and domestic stability, while equity outflows reflected regional portfolio rebalancing within ASEAN. Malaysian Government Securities yields rose 2–6 bps across the curve, mirroring global bearish flattening trends seen in US Treasuries, German Bunds, and Chinese Government Bonds. Secondary bond market activity in Malaysia moderated in August, with trading volumes easing 5.1% m-o-m to RM164.2 billion. However, total issuances surged 46.5% m-o-m to RM44.1 billion, led by MGS/ Government Investment Issues (GII). Historically, non-MGS/GII bond issuances tend to accelerate towards year-end, suggesting supply momentum is likely to remain firm in a stable rate environment.