GDP growth continues to cool in Q1 2025

Q1 marks the third consecutive deceleration: Advanced estimates show that GDP growth moderated to 4.4% year on year in the first quarter of 2025, down from 5.0% in the fourth quarter. The result was below market expectations, and marked the slowest growth rate in a year as well as the third consecutive quarter of cooling economic activity.

Broad-based slowdown outweighs agricultural sector improvement: Preliminary data shows that weaker growth in the mining and construction sectors were the main drags on activity in Q1. Mining and quarrying recorded a sharp drop in Q1, shrinking 4.9% after a 0.9% fall in Q4 as crude and natural gas production declined. Moreover, growth in the construction sector softened, despite remaining robust at 14.5% (Q4: +20.7% yoy). The services and manufacturing remained relatively stable compared to the previous quarter, as services rose at a softer 5.2% (Q4: 5.5% yoy) and manufacturing growth softened from 4.4% in Q4 to 4.2% in Q1. More positively, the agricultural sector rebounded, recording 0.7% growth in Q1 compared to Q4’s 0.5% decline.

2025 to record softer growth: Our Consensus is for economic growth to moderate in the coming quarters before ending the year with a bang, coming in with the highest rate of 2025 in Q4. However, annual growth over the year as a whole is expected to come in below 2024’s figure. Rising global tariffs will cap economic growth by limiting exports and hindering spending and investment as a result of weaker business and consumer confidence. Interest rate cuts are an upside risk, while sharper-than-expected fiscal consolidation is a downside risk.

Panelist insight: United Overseas Bank’s Julia Goh and Loke Siew Ting commented on the outlook: “Beyond 1Q25, Malaysia’s growth outlook will be contested by the impact of intensifying global trade war, risks of a hard landing in major economies, and greater financial volatility amid ongoing domestic fiscal reform agenda. […] Our base case remains that there is no outright recession, Malaysia’s inflationary pressure will be contained, and domestic financial stability is preserved despite volatile global markets. This allows Bank Negara Malaysia (BNM) to keep a wait-and-see approach, leaving the overnight policy rate (OPR) unchanged at 3.00% for now.”

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