The Federation of Malaysian Manufacturing (FMM) is projecting Malaysia’s economic growth to moderate to 3.5%-3.6% in the second half of 2025 (2H2025), reflecting both domestic and external challenges.
“We are of the view that the later part of 2025 will bring about challenges for the Malaysian economy, particularly for the SME (small and medium enterprise) sector, with lower growth in the later part of the year, thus entailing a whole-year growth rate that is closer to the lower end of the official forecast,” said FMM president Tan Sri Soh Thian Lai in a statement on Thursday.
FMM's view came ahead of Bank Negara Malaysia's (BNM) monetary policy committee meeting later on Thursday, where the overnight policy rate is expected to be kept at 2.75%.
In July, BNM revised Malaysia’s gross domestic product (GDP) growth forecast to between 4% and 4.8%, down from its previous projection for a 4.5%-5.5% growth.
The pace of expansion, however, will be slower than the 5.1% growth in 2024.
According to Soh, higher business costs stemming from subsidy rationalisation, expanded sales and service tax, utility tariffs and rising wages are weighing on manufacturers, particularly SMEs.
Malaysia’s manufacturing sector has already slowed, expanding by 3.7% in the second quarter of this year (2Q2025) compared with 4.1% in the first quarter.
“On the back of cost pressures, lower profit margins and reduced demand, there are valid reasons to expect a weakening in the performance of the manufacturing sector, translating into weaker impetus to growth,” Soh cautioned.
Externally, uncertainties remain elevated, with global headwinds adding to the challenge. While Malaysia secured a lower 19% tariff from the US, the direction of Washington’s trade policy remains unclear. Slower growth prospects in the US and China, alongside global conflicts, have driven up oil and transport costs, which are expected to weigh on Malaysia’s export-oriented manufacturers.
Global growth prospects for this year are weighed down by trade tensions, slowing demand and persistent policy uncertainties.
The International Monetary Fund is projecting world GDP to expand by 3% in 2025, down from 3.3% in 2024 and below the pre-pandemic average of 3.7%. The World Bank is even more cautious, forecasting growth at 2.3% — the weakest since 2008 outside of global recessions.
“Nearly 70% of economies have seen downward revisions, underscoring the fragility of the recovery. A modest improvement is expected only in 2026-27, with growth averaging 2.4%-2.6%,” said FMM.
Malaysia’s GDP expanded 4.4% in 2Q2025, driven mainly by services, manufacturing and construction. Private consumption remained the main growth driver, underpinned by a stronger labour market as the unemployment rate fell to 3% during the quarter. Nominal wages rose 3.4% year-on-year (y-o-y), while real wages were up 2.1% y-o-y in 2Q2025.
Soh noted that steady domestic demand will provide some cushioning, supported by higher minimum wages, targeted cash transfers, and ongoing multi-year national projects.
Inflationary pressures have also eased, with headline inflation falling to 1.3% in 2Q2025, while the ringgit has strengthened 5.1% against the US dollar, trading at RM4.22 by mid-August.
“Steady domestic demand, moderating inflation, a robust labour market and sound policy execution can provide the resilience needed to weather uncertainty and sustain growth in a fragile global recovery,” Soh added.
Source: theedgemalaysia