Malaysia’s economy expanded by 6.3% in the fourth quarter of 2025, up from 5.4% in the previous quarter, mainly driven by stronger domestic demand, according to Bank Negara Malaysia. For the full year, the economy grew by 5.2%, exceeding the earlier forecast range of 4% to 4.8%, reflecting sustained momentum in household spending, investment activity, and exports.

The latest data indicates that overall economic conditions remained supportive as the country moves into 2026, with steady growth across key sectors and manageable price pressures.

Domestic Spending And Investment Continue To Drive Growth

Stronger household spending was a key contributor to growth in the fourth quarter, supported by stable employment conditions and income-related policy measures that helped sustain consumer confidence and purchasing activity.

Investment activity also remained firm, with higher spending on machinery and equipment, particularly for data centres, alongside continued progress in multi-year projects undertaken by both the private and public sectors, reinforcing longer-term capacity expansion.

Exports strengthened further during the quarter, led by higher demand for electrical and electronics products, while inbound tourism and information and communication technology services supported services exports and contributed to a continued current account surplus.

On a quarter-on-quarter, seasonally adjusted basis, the economy expanded by 0.8%, indicating that growth continued, albeit at a more moderate pace compared with the previous quarter.

Services And Manufacturing Lead Sectoral Expansion

Growth on the supply side was mainly supported by the services and manufacturing sectors, which accounted for the bulk of economic expansion during the quarter.

In the services sector, consumer-related activities, government services, and the information and communication technology segment recorded stronger performance, partly reflecting the operationalisation of data centres and sustained domestic demand.

Manufacturing growth was driven by increased production in the electrical and electronics subsector, in line with global technology demand, as well as higher output of consumer-related goods, signalling continued resilience in both external and domestic markets.

The agriculture sector also improved, supported by stronger palm oil production and less severe flooding compared with the previous year, which helped stabilise output.

Inflation Remains Contained In 2025

Headline inflation remained stable at 1.3% in the fourth quarter, unchanged from the previous quarter, while core inflation increased slightly to 2.3%, mainly due to faster price increases in selected items and base effects from mobile communication services.

These increases were largely offset by lower prices for selected administered items, with electricity prices declining by 10.3% and petrol prices falling by 2%, partly reflecting larger electricity generation cost discounts and the targeted RON95 subsidy introduced in October 2025.

For the full year, headline inflation averaged 1.4%, while core inflation averaged 2%, suggesting that overall price pressures remained moderate despite steady economic growth.

Ringgit Appreciates Against Major Currencies

The ringgit strengthened during the fourth quarter of 2025, with the nominal effective exchange rate appreciating by 3.8% against the currencies of Malaysia’s major trading partners, while the ringgit rose by 3.9% against the US dollar.

For the full year, the ringgit appreciated by 10.2% against the US dollar, while the nominal effective exchange rate increased by 6.3%, reflecting both external developments and domestic factors.

According to Bank Negara Malaysia, the currency’s performance was supported by narrower interest rate differentials following US Federal Reserve rate cuts, as well as Malaysia’s positive economic outlook and ongoing reform efforts, which helped reinforce investor confidence.

Credit Growth Moderates As Lending Expands At A Steadier Pace

Credit growth to the private non-financial sector moderated to 5.4% in the fourth quarter, compared with 6% in the previous quarter, reflecting a slower pace of expansion in outstanding loans and corporate bonds.

Outstanding loans grew by 5%, while corporate bonds expanded by 6.9%, and business loan growth eased to 3.9%, mainly due to slower growth in working capital loans among small and medium enterprises.

Despite the moderation in growth rates, total loan disbursements increased to RM393.5 billion during the quarter, compared with RM376.9 billion previously, while household loan growth remained stable at 5.6%, indicating continued access to financing across most purposes.

Growth And Inflation Outlook For 2026

Bank Negara Malaysia expects economic growth to remain supported in 2026 by resilient domestic demand and steady export performance, with household spending projected to benefit from continued employment and wage growth alongside government policy measures.

Investment activity is expected to be sustained by ongoing multi-year projects, the continued realisation of approved investments, and initiatives under national development plans, while export growth is likely to remain underpinned by global demand for electrical and electronics goods and higher tourism activity in conjunction with Visit Malaysia Year 2026.

Inflation in 2026 is projected to remain moderate amid easing global cost conditions, with core inflation expected to stay broadly stable and close to its long-term average, while policy reforms introduced in 2025, including the expansion of the Sales and Service Tax and targeted RON95 subsidy rationalisation, are expected to have only modest effects on overall price levels.

Implications For Household Finances And Borrowing Conditions

The combination of steady economic growth, moderate inflation, and a stronger ringgit suggests relatively stable macroeconomic conditions entering 2026, which can support household income stability and purchasing power.

At the same time, the moderation in credit growth indicates that lending activity is expanding at a more measured pace rather than accelerating sharply, while stable household loan growth suggests continued access to financing without clear signs of excessive borrowing.

A firmer ringgit may help ease imported cost pressures, which can influence prices of goods such as electronics and travel-related expenses, although exchange rate movements will continue to depend on global financial conditions.

Taken together, the latest data points to an environment of steady expansion and contained price pressures, providing a relatively predictable backdrop for savings decisions, borrowing commitments, and longer-term financial planning.

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