Economic Focus: 4Q25 GDP - Impressive all-round quarter

• Stellar 4Q25 GDP growth of 6.3% y-o-y on strong momentum in domestic spending
• Steady growth trajectory to sustain in 2026, underpinned by healthy investment activities, firm household spending and resilient exports
• Cautiously optimistic on Malaysia's prospects given strong fundamentals

Robust expansion in domestic demand

Malaysia's economy grew 6.3% y-o-y and 0.8% q-o-q on a seasonally adjusted (SA) basis in 4Q25 (3Q25:+5.4% y-o-y; +2.7% SA q-o-q), which was even higher than the advance estimate released earlier. This lifted 2025 GDP growth to a solid 5.2% (vs 5.1% in 2024), despite concerns of trade uncertainties, and easily surpassed the government's GDP growth target of 4.0%-4.8%. The strong 4Q25 GDP performance was largely attributed to the sustained expansion in domestic demand (+6.6%), offset by weaker net exports (-45.8% vs +18.7% in 3Q25). It is likely that the successful ASEAN summit and continuous transmission effect of the July 2025 interest rate cut have contributed to the positive all-round economic performance in 4Q25.

Confluence of economic tailwinds

Domestic consumption in 4Q25 continued to be boosted by sustained expansion in the labour market. The unemployment rate dipped to an 11-year low of 2.9% in Dec 2025, alongside a historic high labour force participation rate. In addition, private sector nominal wages grew at the fastest pace in two years, rising 4.1% in 4Q25 (3.1% in 4Q24) given the tight labour market. Unsurprisingly, strong household spending remains the cornerstone of Malaysia's growth driver as reflected in firm discretionary spending. Meanwhile, 4Q25 capital expenditure grew at a solid pace of 9.3% y-o-y (3Q25: +7.4%), reflecting the positive impact arising from record-high approved investments in 2021-2024 and various government-led strategic developments. The momentum stayed intact with approved investments rising 13% y-o-y to RM285bn in 9M25, providing further tailwinds in the near-to-medium term. On the other hand, government expenditure increased by 8.0% (3Q25: +7.1%) on higher emoluments and services spending.

Firing on all cylinders

Within the Services sector (60% of 4Q25 GDP; +6.3% y-o-y), the Wholesale & Retail Trade sub-sector rose by 5.7% y-o-y (vs 4.3% in 3Q25) - the fastest in three years - while the Transportation and Storage sub-sector growth remained steady at 8.7% y-o-y (vs 7.9% in 3Q25). Meanwhile, the Construction sector maintained its double-digit growth of 11.0% (vs 11.8% in 3Q25), given robust growth across all the sub-sectors. The Manufacturing sector's growth momentum picked up to 6.1% y-o-y in 4Q25 (vs 4.1% in 3Q25), thanks to the impressive 13.9% y-o-y increase in the E&E industry (9.1% y-o-y in 3Q25). In addition, the Agriculture sector posted strong 5.4% y-o-y growth in 4Q25, ending a period of lacklustre performance thanks to higher growth for oil palm.

In a position of strength to navigate external challenges

Malaysia is well-positioned to benefit from firm domestic demand, underpinned by a robust labour market and strong economic activities. Furthermore, a diversified export base and a non-aligned policy - prioritising economic cooperation and integration - provide a vital buffer against geopolitical tensions. Key downside risks include lower-than expected commodity production and slower global trade.

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