23/12/2025

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TUESDAY | DEC 23, 2025

Malaysia kept advancing in 2025 in the face of headwinds

KUALA LUMPUR: Malaysia entered 2025 amid fiscal constraints, subsidy reforms, uneven global trade and a weak ringgit, but the economy continued to advance, even as the overall outlook remained cautious. Instead of stalling, the country held its nerve, tightened its belt, and pressed ahead with reforms that reshaped its economic landscape and strengthened the foundations for long-term resilience. The year kicked off with cautious optimism as Malaysia recorded 4.4% gross domestic product (GDP) growth in the first quarter of 2025 (Q1 2025), supported by sustained household spending, favourable labour market conditions and government policies. The momentum remained intact in the second quarter, with GDP expanding at the same pace of 4.4%, driven by robust domestic demand despite global headwinds stemming from escalating tariff tensions under the Trump 2.0 administration and ongoing geopolitical conflicts abroad. The economy hit a decisive stride in the third quarter, expanding 5.2% – the strongest quarterly increase since 2022 – putting Malaysia firmly on track to achieve the upper end of its full-year growth target of 4.0–4.8%. Prime Minister and Finance Minister Datuk Seri Anwar Ibrahim said domestic demand, a stable labour market, and continued investment in high-growth, high value sectors were laying a solid foundation for sustained economic momentum. For the first nine months of the year, the economy grew 4.7%, underscoring Malaysia’s resilience amid one of the most turbulent global environments in recent years. Economists say Malaysia may end 2025 in better shape than many had anticipated. A combination of rising US tariffs, conflicts across Eastern Europe and the Middle East, and weakening demand from China created a challenging backdrop for emerging economies. Against this backdrop, Malaysia’s ability to maintain its momentum was widely viewed as a notable achievement. Sunway University economist Dr Yeah Kim Leng described 2025 as a defining year for Malaysia in demon strating its economic resilience, noting that growth outpaced several regional peers and other upper middle-income economies. He attributed the stronger perfor mance to low inflation, near-full employment, and firm domestic demand, all of which helped cushion the impact of external shocks. He added that public investment – particularly in transport, utilities, healthcare infrastructure and in dustrial parks – provided additional support throughout the year. Meanwhile, the long-awaited rebound in the global semiconductor cycle – a sector central to Malaysia’s export performance – helped stabilise shipments and lift trade numbers towards the year’s end. Analysts across the region have turned more upbeat on Malaysia’s economic outlook, with HSBC Global Research revising its 2025 GDP forecast upwards from 4.2% to 5%, citing robust domestic activity and

o Country held its nerve, tightened its belt and pressed ahead with reforms during the year

of the SST base from January, and refinements to diesel subsidy in early 2025. These reforms reinforced the government’s commitment to lower the fiscal deficit to 3.8% in 2025 and 3.5% in 2026, in line with FRA targets. Headline inflation remained below 3%, which economist Geoffrey Williams described as “one of the key success stories of 2025”. However, he noted that house holds continue to feel the impact of rising prices, even if the pace of increase has slowed. This reflects structurally low incomes and the perception that essential goods are becoming more expensive, while non-essential products are in creasingly less affordable. He added that the Progressive Wage Policy is beginning to show early results, with the Deputy Economy Minister reporting that, as of October, 1,966 employers have increased the salaries of 20,737 workers. With RM200 million allocated to expand participation to 50,000 workers, Williams said, this marks a constructive start — although the current reach remains small relative to the three million individuals in the target income group. Progressive wage would work better if simplified by removing complex requirements and man datory training, and by introducing a straightforward reverse income tax or tax credit paid directly to workers earning RM1,700-RM5,000 a month, he added. Malaysia’s monetary environment remained stable, with Bank Negara Malaysia keeping the Overnight Policy Rate unchanged, while the ringgit – after early-year volatility driven by global US dollar strength and geopolitical uncertainty – regained momentum in the second half as fiscal clarity and improved market conditions took hold. Improved investment flows and easing global interest rate pressures also aided the currency’s recovery. The ringgit began trending higher against the greenback, revisiting the 4.12 level several times, especially in the fourth quarter of 2025. Its latest and strongest showing came on Dec 3, when the currency reached a fresh 14-month high of 4.1200, surpassing the previous peak of 4.1210 recorded on Sept 30, 2024. Investment remained robust in 2025, driven by inflows into semicon ductors, clean energy and advanced industries. The National Semiconductor Strategy gained traction with new commitments in system-in-package

improving external conditions. Several other financial institutions have issued similar upgrades, posi tioning Malaysia as the second-fastest growing economy in Southeast Asia in 2025, behind only Vietnam. Fiscal consolidation remained the central policy theme in 2025 as Malaysia continued its medium-term reform trajectory under the Public Finance and Fiscal Responsibility Act (FRA), enacted in 2023 to strengthen fiscal governance and ensure a sustainable deficit path. Khazanah Research Institute chairman Dr Nungsari Ahmad Radhi said Malaysia’s consolidation efforts were on track and anchored by credible reforms, including subsidy rationalisation, the expansion of the Sales and Services Tax (SST) and the nationwide rollout of e-invoicing. These administrative measures were reinforced at the legislative level, with Parliament passing several key economic and finance-related reforms in 2025 – including procure ment and tax-administration legis lation – further strengthening public finance governance under the Madani Economy Framework. These fiscal measures aim to reclaim fiscal space by shifting spending away from inefficient blanket subsidies towards more productive uses, including streng thening social safety nets and maintaining manageable debt levels, thereby supporting confidence in the ringgit and preserving Malaysia’s sovereign rating. Throughout 2025, the Madani government implemented several major policy changes with the major fiscal milestone being the ration alisation of RON95 subsidies under Budi Madani RON95 (BUDI95) which took effect on Sept 30. Under BUDI95, the government has allocated RM11 billion to cover the difference between the subsi dised price of RM1.99 per litre and the unsubsidised pump price of around RM2.60 per litre. It was reported that more than 84% of 16.5 million eligible Malaysians, or 13.9 million, enjoyed the RON95 petrol price of RM1.99 per litre under BUDI95 as of Nov 30, and sales of RM5.16 billion or petrol usage of 2.59 billion litres have recorded. The government is expected to generate savings of around RM2.5 billion to RM4 billion a year, subject to global oil prices and based on domestic consumption survey data prior to BUDI95’s implementation. Other reform policies included the enforcement of full e-invoicing across businesses beginning in August, followed by the continued expansion

One of the major fiscal reforms undertaken by the Madani government in 2025 is the rationalisation of petrol subsidies under Budi Madani RON95 programme which took effect on Sept 30. – BERNAMAPIC

ments on cross-border intercon nections and advancing discussions on renewable energy exchange. Malaysia also deepened cross border payment linkages by ex panding QR payment interopera bility across Asean. These regional achievements strengthened the country’s inter national economic profile and enhanced investor confidence during its chairmanship year. Looking ahead, Malaysia’s pru dent fiscal and monetary stance – supported by a strong banking system – is expected to serve as the central macroeconomic anchor in 2026, underpinning both private consumption and investment. Yeah forecasts GDP growth of 4 5% next year, though he cautioned that risks remain from a global slowdown, financial market volatility, or renewed geopolitical tensions. He said Malaysia’s most pressing challenge heading into 2026 will be firm-level productivity and com petitiveness. Nungsari said the next phase of growth depends on Malaysian firms becoming more innovative and resilient. “We need more Malaysian firms doing new things and being strong enough to export with better margins so they can pay better wages. Policy has opened markets – now firms must rise to the challenge,” he said. As Malaysia moves towards the 13th Malaysia Plan, which outlines the nation’s economic direction for 2026-2030 with a focus on value creation, digitalisation, talent de velopment and equitable growth, 2025 was less about headline numbers and more about laying the fiscal and institutional foundations for the next phase of transformation. – Bernama

manufacturing, integrated circuit design, and semiconductor-related research and development. Meanwhile, the National Energy Transition Roadmap made signi ficant strides with large-scale solar deployment, hydrogen pilot projects, and power grid modernisation initiatives. Malaysia also strengthened its digital infrastructure during the year, marked by the introduction of the country’s Digital ID in October to ease service delivery and support targeted assistance. Investments in data centres, cloud infrastructure, and artificial intelligence (AI) computing capabilities surged as global technology firms expanded their presence in the Asia-Pacific. Strategic projects under the government’s GEAR-uP programme also advanced throughout 2025, particularly in aged care, agroindustry and semiconductor supply chain development – sectors identified as key medium-term growth drivers. Malaysia’s role as Asean Chair added regional significance in 2025, as the country steered the bloc through a period of geopolitical uncertainty while strengthening the region’s economic architecture. Malaysia accelerated negotiations on the Asean Digital Economy Framework Agreement, which is expected to unlock substantial growth in digital trade, enhance inter operability, and improve cross border data governance. The country also pushed for significant progress in upgrading the Asean Trade in Goods Agreement, long seen as essential for reducing non-tariff barriers and improving the flow of goods across the region. In the energy sector, Malaysia revitalised the momentum for the Asean Power Grid, securing renewed commit