The Malaysian economy recorded a strong growth of 6.3% in the fourth quarter of 2025

The Malaysian economy advanced by 6.3% in the fourth quarter of 2025 (3Q 2025: 5.4%), driven mainly by domestic demand. Growth in household spending was higher, driven by positive labour market conditions and income-related policy support. The strong investment growth was underpinned by stronger machinery and equipment spending, particularly for data centres, and ongoing implementation of multi-year projects by both the private and public sectors. In the external sector, exports continued to strengthen, led mainly by stronger exports of electrical and electronics (E&E) goods. Inbound tourism and information and communication technology (ICT)-related services also contributed to services exports growth and surplus in the current account balance. Meanwhile, imports remained strong driven by the rebound in intermediate goods to support economic activity and productive capital-related goods reflecting the realisation of ongoing investment projects.

On the supply side, growth was mainly accounted for by the expansion in the services and manufacturing sectors. Higher growth in the services sector was mainly driven by consumer-related subsectors, government services as well as ICT subsector following the operationalisation of data centres. In the manufacturing sector, performance was driven by stronger production in the E&E sub-sector induced by higher demand from the global technology expansion, alongside the increased output of consumer-related goods. Meanwhile, the agriculture sector strengthened, reflecting higher growth for palm oil amid less severe floods compared to last year. On a quarter-on-quarter, seasonally-adjusted basis, growth expanded by 0.8% (3Q 2025: 2.7%).

Headline and core inflation remained moderate in the fourth quarter of 2025

Headline inflation remained stable at 1.3% (3Q 2025: 1.3%) while core inflation increased to 2.3% (3Q 2025: 2%). The increase was mainly driven by faster price increases in certain core items (e.g. jewellery and watches) and base effects from mobile communication services inflation. This was largely offset by lower prices for selected administered items, particularly for electricity (-10.3%; 3Q 2025: -4.6%) and petrol (-2%; 3Q 2025: -0.6%), in line with larger discounts related to electricity generation costs during the quarter and the targeted RON95 fuel subsidy implemented beginning October 2025. Inflation pervasiveness, measured by the share of consumer price index (CPI) items registering monthly price increases, declined to 39.6% during the quarter (3Q 2025: 43.8%), remaining below the historical fourth-quarter average of 41.7%. In line with previous expectations, headline and core inflation in 2025 averaged at 1.4% and 2%, respectively^[1] (2024: headline and core inflation both averaged at 1.8%).

The ringgit appreciated against currencies of trading partners in the fourth quarter of 2025

In the fourth quarter of 2025, the ringgit’s nominal effective exchange rate (NEER) appreciated by 3.8% against currencies of Malaysia’s major trading partners. The ringgit appreciated by 3.9% against the US dollar. These movements were driven by both external and domestic factors. On the external front, the narrowing of interest rate differentials following the US Federal Reserve’s policy rate cuts in October and December has supported the ringgit during the quarter. In addition, the ringgit’s appreciation was driven by lower tariff-related uncertainties as the US concluded trade agreements with several of its trading partners in the region, including Malaysia. Domestically, Malaysia’s positive economic prospects, underpinned by reform efforts, have continued to reinforce investor confidence and improved overall sentiment in domestic financial markets.

For 2025, the ringgit appreciated by 10.2% against the US dollar while the ringgit’s NEER appreciation was at 6.3%. Moving forward, movements in the ringgit will continue to be influenced by external factors. Nonetheless, resilient domestic fundamentals are expected to provide enduring support to the ringgit. Furthermore, the coordinated efforts by the Government and Bank Negara Malaysia (BNM) will continue to encourage healthy two-way flows in the domestic financial markets. These ongoing efforts include the Qualified Resident Investor (QRI) programme that offers resident corporates the flexibility to reinvest abroad, and proactive engagements with investors, exporters, and importers. BNM will also continue to ensure the orderly functioning of the domestic foreign exchange market.

Credit growth moderated amid slower expansion in outstanding business loans

Credit growth to the private non-financial sector moderated to 5.4% in the fourth quarter of 2025 (3Q 2025: 6%) following slower expansion in outstanding loans (5%; 3Q 2025: 5.6%) and corporate bonds (6.9%; 3Q 2025: 7.3%). Growth in business loans moderated to 3.9% (3Q 2025: 5.5%), mainly reflecting slower loan growth for working capital purposes among SMEs (4.3%; 3Q 2025: 6%). Business loan growth for investment-related^[2] purposes also eased but remained above its long-term average.^[3] On a quarterly basis, loan disbursements expanded across SMEs and non-SMEs (RM393.5 billion; 3Q 2025: RM376.9 billion). For households, loan growth remained stable at 5.6% (3Q 2025: 5.7%), with sustained loan growth across most purposes.

Resilient domestic demand and continued exports will support growth in 2026

Bank Negara Malaysia Governor Dato’ Sri Abdul Rasheed Ghaffour says, ‘Malaysia’s economy grew by 5.2% in 2025, on account of strong domestic demand and favourable exports, exceeding the forecast range of 4% - 4.8%. This growth momentum is expected to continue in 2026, supported by resilient domestic demand and exports.’

On the domestic front, household spending will benefit from the continued support from employment and wage growth, as well as Government policy measures. Investment activity will be driven by the further progress of multi-year projects in both the private and public sectors, with continued realisation of approved investments and implementation of catalytic initiatives under national master plans and the Thirteenth Malaysia Plan (13MP). On the external front, export growth will be underpinned by steady global demand, particularly for E&E goods. Growth will also be supported by increased tourism activities following the launch of Visit Malaysia Year 2026.

Inflation in 2026 is expected to remain moderate

Going forward, headline inflation is expected to remain moderate in 2026 amid the continued easing in global cost conditions. The modest commodity price outlook would help to contain cost pressures on inflation. Core inflation is expected to remain broadly stable and close to its long-term average in 2026, reflecting continued expansion in economic activity and the absence of excessive demand pressures. The domestic policy reforms implemented in 2025, such as the Sales and Service Tax (SST) expansion and targeted RON95 subsidy rationalisation, are projected to result in only modest effects on inflation in 2026.

[1] As published in previous Quarterly Bulletin publications, headline and core inflation were projected to average between 1% – 2% and 1.5% – 2.3%, respectively, in 2025.

[2] Comprises loans for the purchase of non-residential properties, residential properties for business use, fixed assets, as well as for construction activities.

[3] Refers to quarterly average of loan growth from 2022 to 2024.

See also:

• Publication: Quarterly Bulletin Fourth Quarter 2025