Malaysia Set to Rank Second in ASEAN Growth in 2025 as Upgrades Mount

Momentum builds on upgraded forecasts and steady data

Malaysia is on course to be ASEAN’s second fastest growing economy in 2025, trailing only Vietnam, after a wave of forecast upgrades from major research houses. HSBC has lifted its 2025 gross domestic product forecast to 5 percent from 4.2 percent, while Maybank Investment Bank and Standard Chartered have each raised their projections to 4.7 percent. CIMB now sees growth at 4.5 percent next year. The improved outlook is rooted in stronger domestic demand, steady macro policy, and clearer trade visibility, alongside a ringgit that has recovered from last year’s lows. Analysts also credit Malaysia’s flexible diplomatic approach, highlighted at the 47th ASEAN Summit, for maintaining neutrality while engaging major partners, a stance that reduces uncertainty for trade and investment decisions.

Fresh data reinforce the brighter picture. Malaysia’s economy expanded 4.4 percent year on year in the first quarter of 2025 and held that pace in the second quarter, before accelerating to 5.2 percent in the third quarter. That lifted growth to 4.7 percent for the first nine months, matching the narrative of resilient domestic demand and improving external dynamics. With inflation contained and employment firm, Bank Negara Malaysia is widely expected to keep the overnight policy rate at 2.75 percent, preserving support for consumption and investment. HSBC expects Malaysia to grow at a similar pace to Indonesia in 2025 and to sit behind Vietnam, where the bank has raised its forecast to 7.9 percent. Several houses, including Standard Chartered and Maybank, see growth easing toward 4.5 percent in 2026 as external demand softens, a view echoed by CIMB’s projection of 4.1 percent.

What the numbers say

The upgrades are anchored in a string of positive readings across growth, inflation, jobs, and financial markets. Third quarter activity gained speed after a stable first half, while household spending remained firm. The banking system continues to supply credit, and the currency has strengthened as rate cuts in the United States narrowed interest differentials and trade uncertainty eased.

• HSBC now projects Malaysia to grow 5.0 percent in 2025, placing it second in ASEAN behind Vietnam, with Indonesia close behind.
• Standard Chartered has raised its 2025 forecast to 4.7 percent and trimmed its 2026 outlook to 4.5 percent on softer external demand.
• Maybank Investment Bank has lifted its 2025 projection to 4.7 percent and set its 2026 call at 4.5 percent, citing resilient domestic demand and policy support.
• CIMB now expects 4.5 percent in 2025 and 4.1 percent in 2026, anticipating slower growth among key trading partners.
• GDP growth came in at 4.4 percent in the first and second quarters of 2025, then quickened to 5.2 percent in the third quarter, putting the nine month pace at 4.7 percent.
• Inflation has been modest, with headline readings near the low 1 percent range, while the unemployment rate eased to 3.1 percent in the first quarter of 2025.
• The ringgit has rallied, and OCBC projects it near 4.16 per US dollar by end 2025 and 4.04 by the end of next year.
• Across ASEAN, Vietnam is running ahead after a strong first half, while Indonesia, the Philippines, and Singapore have also posted solid quarters. Thailand has slowed on softer tourism and consumption.

Malaysia’s Ministry of Finance underscored the role of services, manufacturing, and construction in driving early 2025 momentum, as well as the lift from festive spending, wage gains, and a firmer labor market. In a May 16 press release, the ministry said:

A rousing performance across key economic sectors lifted Malaysia’s Gross Domestic Product by 4.4 percent in the first quarter of 2025…

The ministry highlighted services growth of 5.0 percent, manufacturing at 4.1 percent, and construction at 14.2 percent for the quarter, with private consumption up 5.0 percent. It also cited national policy frameworks, including the National Energy Transition Roadmap, New Industrial Master Plan 2030, and the National Semiconductor Strategy, as catalysts for investment interest. The government has cautioned that reciprocal tariffs and global demand risks could affect the range of outcomes for this year and next, and said it would reassess forecasts when trade conditions are clearer. The full statement is available from the Ministry of Finance at this link.

Domestic demand is the anchor

Private consumption continues to do the heavy lifting. Wages and employment have improved, inflation remains manageable, and policy has supported income. The first quarter saw a lift from festive spending around Chinese New Year and the pre Hari Raya period, while the implementation of a higher minimum wage and civil service pay adjustments helped household budgets. Analysts expect consumption to remain firm into early 2026, aided by seasonal spending and cash transfers to low and middle income households. Credit conditions are supportive for business expansion, and banks report steady appetite for borrowing among firms in trade, manufacturing, and services.

Stable monetary policy adds to the foundation. The overnight policy rate sits at 2.75 percent after a July rate cut, and most houses expect Bank Negara Malaysia to keep settings unchanged through the near term. A steady policy rate can help suppress borrowing costs on mortgages, auto loans, and working capital, which supports spending and investment. With inflation running in a moderate range and the labor market tight, real incomes have held up. That combination is feeding through to services activity and recovery in tourism related sectors, while supporting retail, food and beverage, and consumer electronics.

Trade, tariffs and Malaysia’s diplomatic balance

Trade dependent economies across Southeast Asia are adjusting to a new tariff regime applied by the United States. The introduction of broad tariffs has raised costs for exporters and added uncertainty to supply chain planning. A 90 day pause on reciprocal tariffs that ended in early July gave firms time to front load orders and adjust shipping schedules, which helped manufacturing output in the second quarter. Negotiations continue as regional governments pursue carve outs, lower effective tariff rates, or commitments to buy more US goods. Malaysia has sought to balance interests through a neutral stance that keeps channels open with Washington, Beijing, and other partners. Officials have also moved to diversify export markets and expand ties within ASEAN and through the Regional Comprehensive Economic Partnership to limit reliance on any single corridor. The Ministry of Finance has signaled it will revisit its 2025 forecast when there is more clarity on reciprocal tariffs, and it has outlined steps to strengthen domestic investment to offset weaker external demand if needed.

Sectors to watch in 2025 and 2026

Electronics and electricals remain a core pillar. Malaysia is a major hub in the global semiconductor value chain, with strengths in assembly, testing, and niche front end capabilities. Demand for power management chips, sensors, and automotive components continues to grow, supported by electric vehicles, data centers, and artificial intelligence infrastructure. Several global tech firms have announced new facilities and expansions in Malaysia, and the National Semiconductor Strategy seeks to pull in more high value activity. Analysts flag a risk that sector specific levies or new tariffs could weigh on export volumes in some product lines, yet order books have benefited from supply chain diversification away from concentrated sources.

Tourism is another bright spot. Reopening in China and visa facilitation have accelerated visitor arrivals, and industry leaders expect the Visit Malaysia 2026 campaign to lift receipts further. Hospitality, retail, entertainment, and transport services are seeing a steady rise in demand. Construction has gathered pace on public and private projects, with airport upgrades, flood mitigation, rail links, and industrial parks contributing to activity. Mining and quarrying rebounded in the third quarter on the back of higher output in selected fields. The mix points to a broader base for growth than in prior years, which can cushion volatility in any single sector.

Monetary policy and the ringgit

Bank Negara Malaysia’s stance is designed to keep conditions supportive while safeguarding price stability. The current 2.75 percent policy rate, low inflation, and a firmer currency give it room to respond if growth surprises either way. The ringgit’s recovery, aided by global rate trends and an improved flow of investment news, has eased imported inflation by reducing the local currency cost of fuel, food inputs, and machinery. A stronger currency can be a headwind for some exporters, yet the trade off is a more predictable inflation path and improved investor sentiment. OCBC expects the ringgit near 4.16 per US dollar by the end of 2025 and 4.04 by the end of 2026, a trajectory that would keep imported price pressures contained.

Risks that could temper growth in 2026

While the 2025 trajectory looks solid, banks are cautious on 2026. Forecasts cluster around 4.5 percent as weaker external demand, slower growth among key trading partners, and lingering tariff effects weigh on exports. The Asian Development Bank has pared back regional projections for 2025 and 2026, pointing to global uncertainty and tighter financial conditions. Malaysia’s outlook still benefits from policy reforms, infrastructure spending, and capital inflows into technology and energy transition projects, but headwinds from trade policy and a softer global cycle could bite. Several analysts also see a case for a policy rate cut in the second quarter of 2026 if external demand fades, which would support domestic activity during a tougher trade backdrop.

How Malaysia stacks up against regional peers

Vietnam is setting the pace in Southeast Asia as industrial activity and exports surge, with banks now projecting growth near 7.9 percent for 2025. Indonesia is expected to deliver steady expansion, with forecasts around the mid 4 percent range. The Philippines has posted an improvement led by household spending, though exports have slowed. Singapore has recovered on manufacturing and external demand, while Thailand has cooled on softer consumption and tourism. Malaysia’s mix of resilient consumption, measured policy, and rising investment in electronics and infrastructure places it near the top of the pack. The combination of a diversified manufacturing base, expanding services, and a pragmatist diplomatic stance underpins the case for Malaysia to rank second in ASEAN growth next year.

Key Points

• Multiple banks have upgraded Malaysia’s 2025 growth outlook, led by a move to 5.0 percent from HSBC and 4.7 percent from Standard Chartered and Maybank.
• Quarterly data are firm, with growth at 4.4 percent in Q1 and Q2 2025 and 5.2 percent in Q3, lifting the nine month pace to 4.7 percent.
• Domestic demand is the main driver, supported by wage gains, low inflation, and a steady 2.75 percent policy rate.
• Malaysia’s diplomatic balance and trade diversification have helped reduce uncertainty as regional tariff changes unfold.
• Key sectors include semiconductors, tourism, services, construction, and selected mining lines.
• The ringgit has strengthened, with projections near 4.16 per US dollar by end 2025 and 4.04 by end 2026.
• Most houses expect growth to ease toward 4.5 percent in 2026 due to softer external demand.
• Malaysia is positioned to be ASEAN’s second fastest growing economy in 2025, behind Vietnam and broadly in line with Indonesia.