KUALA LUMPUR, March 22 (Bernama) — Malaysia's economy is expected to expand by 4.5 per cent to 5.5 per cent in 2025, primarily driven by strong domestic demand and a robust investment landscape with exports expected to moderate amid heightened external uncertainties, Bank Negara Malaysia (BNM) said.
The domestic growth outlook, however, is subject to several downside risks, stemming primarily from the considerable uncertainties from the external front, according to BNM in its Economic and Monetary Review 2024.
“Higher household spending will be driven by employment and faster income growth as well as policy support,” it said in the report released here today.
Last year, the economy grew stronger by 5.1 per cent compared with 3.6 per cent in 2023.
Domestic demand remains growth’s anchor
In 2025, improvements in labour market conditions and income-related government policy measures will provide support to household spending, BNM said.
Meanwhile, private consumption is expected to grow by 5.6 per cent in 2025, driven by the continued improvement in labour market conditions and higher income growth, while employment is projected to expand by 2.1 per cent with total employment projected at 17 million persons.
As for private investment, the central bank said the growth is expected to remain strong at 10.1 per cent, underpinned by the global technology upcycle and sustained external and domestic demand conditions.
“Income growth is projected to improve, supported by higher labour utilisation and government policy measures, including the implementation of a higher minimum wage and civil servant salary under the Public Service Remuneration System (SSPA).
Gross fixed capital formation (GFCF) is expected to grow by 9.3 per cent, driven by the continued robust investments in both structures as well as machinery and equipment (M&E).
Meanwhile, the central bank projected the headline and core inflation to average between two per cent and 3.5 per cent and 1.5 per cent and 2.5 per cent respectively this year.
“The inflationary impact from announced domestic policy measures and tax adjustments, including the targeted RON95 subsidy rationalisation and sales and services tax (SST) expansion, is expected to be temporary and well-contained,” it said.
It said domestic monetary and financial conditions are likely to remain supportive of financing needs amid sustained economic expansion.
Expansion in All Economic Sectors
Most economic sectors are projected to grow in 2025, with the services and manufacturing sectors remaining as key drivers to the overall growth on the back of improved domestic and external conditions.
BNM expects the services sector to register a higher growth of 5.7 per cent this year versus 5.4 per cent in 2024 with continued expansion across all subsectors.
“The transport and storage subsector will be driven by continued support from air passenger traffic, launching of new and upgraded highways, operationalisation of LRT 3 and steady growth in logistics and storage activities,” it said.
Growth in the finance subsector will be underpinned by sustained loan demand, while the real estate and business services subsector will benefit from strong growth in construction activities, it said.
As for the manufacturing sector, BNM projects growth to moderate slightly to 3.9 per cent in 2025 against 4.2 per cent last year as the continued expansion of the electrical and electronics (E&E) and consumer-related industries are offset by slower growth in the primary and construction-related industries.
“The E&E industry is set to benefit from the broader spillovers of the global tech upcycle, which is expected to record growth across all semiconductor segments.
“This is underpinned by the continued growth in global sales outlook, driven by external demand for consumer electronics and artificial intelligence (AI) related semiconductors,” it added.
Robust Investment Landscape
BNM expects the investment upcycle in 2024 to extend into 2025 with private investment growth likely to remain strong at 10.1 per cent while public investment (6.4 per cent) is driven by the implementation of new and existing projects as well as higher capital expenditure by public corporations.
In the private sector, investment intentions for 2025 remain strong as reflected in the high level of approved investments of RM378.5 billion in 2024, which grew by 14.9 per cent on an annual basis, it said.
“The realisation of these investments in the year ahead will be underpinned by continued global demand supporting key industries such as E&E and information and communication technology (ICT), including data centres.
“The progress of these investments will also be accelerated by government initiatives to expedite approval processes and facilitate project implementation, enhanced by active engagements between authorities and investors,” it said.
Additionally, BNM said Malaysia’s well-established and conducive investment ecosystem will provide continued impetus, attracting new investors and promoting investment retention in the country.
It said catalytic initiatives under the national master plans would further support investment activity, citing notable examples such as Petronas’ Kasawari carbon capture and storage (CCS) project and Tenaga Nasional Bhd’s hybrid hydro-floating solar (HHFS) photovoltaic project.
Moderate Trade Activity
Following Malaysia’s strong trade recovery in 2024, BNM is of the view that exports and imports will expand at a more moderate pace in 2025 amid global policy uncertainties.
It expects gross exports to grow by 5.2 per cent this year with manufactured exports, particularly E&E, to continue to drive this growth, offsetting the decline in commodity exports.
“Gross exports will benefit from the ongoing global technology upcycle, in line with the double-digit growth in global semiconductor sales as projected by the World Semiconductor Trade Statistics (WSTS).
“Non-E&E manufactured products will remain supported by continued external demand and investment activities in regional countries,” the central bank said.
Gross imports, which BNM expects to moderate to 7.4 per cent this year, would be driven by an expansion in intermediate and capital goods, reflecting Malaysia’s sustained manufacturing exports and strong investment activity.
Meanwhile, the projected growth in tourist spending, bolstered by improving global travel demand, more liberal visa policies and higher flight connectivity, will lift services exports, it added.
Ringgit to be driven by fluctuations in capital flows
BNM said the ringgit’s performance for the year will be driven mainly by fluctuations in capital flows.
“Foreign inflows due to narrower interest rate differentials are expected to lend support to the ringgit. However, with the US Federal Reserve keeping rates high for a longer period may weigh on the ringgit’s performance.
BNM noted that Malaysia’s favourable economic prospects, domestic structural reforms and ability to attract long-term investments, complemented by ongoing initiatives to encourage flows will provide an enduring longer-term support to the ringgit.
-- BERNAMA
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