Malaysia's gross domestic product (GDP) is expected to have grown 5.3 per cent year-on-year in the fourth quarter of 2025, suggesting a full-year growth of 4.8 per cent.
CIMB Securities said the stronger economic momentum is supported by unexpectedly strong crude palm oil production and sustained manufacturing performance.
It noted that the Q4 growth surpasses the 5.2 per cent recorded in the third quarter, reducing the likelihood of an overnight policy rate (OPR) cut in the second quarter (Q2) of 2026.
"The stronger outturn for Q4 has substantially decreased the probability of a 25 basis points rate cut to the OPR in Q2 2026, likely pushing it to closer towards the end of the year if growth momentum falters.
"We await further confirmation from the data this Friday before refreshing our forecasts," it said.
CIMB Securities said CPO production grew in the final quarter of 2025, rising to 23.1 per cent in December from 13.7 per cent in October.
The increase, attributed to higher fresh fruit bunch yields and a slightly lower base in Q4, likely added 0.4 percentage points to GDP growth, marking a rare upside surprise given the typical seasonal decline in the last months of the year.
The firm said the palm oil output is expected to moderate in the first quarter of 2026, following the usual seasonal trend, with some compensatory growth anticipated in Q4.
The manufacturing sector also remained strong, with Q4 GDP projected to rise 5.8 per cent YoY, compared with 4.1 per cent in Q3.
Industrial production grew 6.0 per cent in October before easing slightly to 4.3 per cent in November, supported by export-oriented industries such as computer, electronics and optical products and electrical equipment.
Domestic-oriented industries held steady, but CIMB Securities noted that higher US tariffs and a stronger ringgit may weigh on export demand, particularly among non-electronics manufacturers, in 2026.
"We continue to expect some slowdown in the export-oriented industries – particularly among the non-electronics and electrical manufacturers – as the higher US tariffs and stronger ringgit dampens demand in 2026.
CIMB Securities expects limited impact on rates if Friday's GDP release confirms solid growth above 5.0 per cent, as the ringgit interest rate swap (IRS) curve already prices out an OPR cut.
Front-end government bond yields are likely to remain anchored by seasonal US dollar weakness, while mid-tenor demand could rise with five-year IRS stabilising near its December 2025 high.
CIMB Securities said subdued appetite for long-duration bonds may persist amid multiple auctions and light foreign participation, with a continued bias towards a steeper government bond curve.