KUALA LUMPUR: Kenanga Investment Bank Bhd (Kenanga IB) expects Malaysia’s economy to maintain steady growth in the second half of 2025 (H2’25) led by services and construction, particularly following final government approval for the Mass Rapid Transit Line 3 mega infrastructure project.
In a research note yesterday, the bank said the outlook is supported by advanced GDP estimates for the second quarter of 2025 (Q2’25), which were in line with its projections, reflecting sustained growth in services despite continued contraction in mining and a slowdown in manufacturing.
“However, prolonged commodity weakness and persistent tariff risks will continue to weigh on overall growth. That said, we maintain our 2025 GDP growth forecast at 4.3% (2024: 5.1%),” it said.
Last Friday, the Department of Statistics Malaysia reported that the economy is forecast to grow by 4.5% in the Q2’25 based on advance GDP estimates, slightly outpacing the 4.4% growth recorded in the previous quarter.
Robust domestic demand is expected to drive growth despite global headwinds.
Meanwhile, Kenanga IB said it is maintaining its 2025 exports forecast at 3.1% (2024: 5.7%), amid ongoing US President Donald Trump’s tariff policies and weak commodity exports.
“While US trade tensions have eased following the recent deal, uncertainty persists, particularly if major economies retaliate. This could disrupt global trade and weigh on Malaysia’s growth outlook,” it said.
Additionally, the bank said the ongoing US-Malaysia trade negotiations are contributing to further ambiguity, especially as Malaysia’s tariff rates remain higher than those of Indonesia’s (19%) and Vietnam’s (20%).
Kenanga IB shared that exports grew 3.8% in H1’25 compared with 5.4% in January-May, slightly above its full-year forecast. However, growth slowed to 3.4% in Q2’25 (Q1’25: 4.3%).
“June’s underperformance reflects continued volatility in external trade, with short-term prospects clouded by uncertainty over tariffs and commodity shipments, along with weaker-than-expected pre-tariff front-loading,” it said.
The bank also noted that demand for electrical and electronics (E&E) products is expected to remain resilient, supported by new product launches and growing demand for 5G and artificial intelligence (AI) adoption, although overall growth is likely to be modest.
Despite external demand uncertainties, CGS International Securities Malaysia Sdn Bhd projects resilient domestic economic activity and is maintaining its 2025 GDP growth forecast of 4.2%.
“Looking at both GDP and trade data, we suspect that the softening growth in Q2’25 may mark the start of a slowdown in external demand.
“We expect H2’25 to be a challenging period given tariff risks and external uncertainties, particularly following the recently revised US tariff of 25% on Malaysian exports,” it said.
However, on a positive note, the securities firm views the tariff implementation date as a moving goalpost, given Trump’s open stance on negotiations, which could provide extended support for exports.
It said that domestic growth, supported by both spending and investment, will be underpinned by labour market reforms such as wage hikes, policy rate cuts amid low inflation, higher foreign tourist arrivals, and renewed investment momentum. – Bernama
