Growth still steady, says BNM governor

Abdul Rasheed: Headline inflation is projected to remain moderate, averaging between 1.5% and 2.3% in 2025.

THE growth in capital imports will strengthen Malaysia’s exports in the long term, as the operationalisation of data centre investments is expected to contribute to services exports, says Bank Negara Malaysia (BNM) governor Datuk Seri Abdul Rasheed Ghaffour.

Speaking at a media conference on the country’s gross domestic product (GDP) growth for the second quarter of 2025 (2Q25) yesterday, the central bank head was commenting on the current account of the balance of payments, which recorded a lower surplus of RM300mil, or 0.1% of GDP, in 2Q25 – compared to the RM16.7bil in 1Q25, which represented 3.4% of GDP.

Earlier, BNM reported that Malaysia’s GDP grew 4.4% year-on-year (y-o-y) in 2Q25.

The central bank also reiterated its updated July projection for the economy to expand between 4% and 4.8% for the full year.

On a quarter-on-quarter (q-o-q) seasonally adjusted basis, growth expanded by 2.1% in 2Q25.

Elaborating on the smaller current account surplus during the quarter under review, Abdul Rasheed said it was largely attributable to cyclical factors.

“These include disruptions in commodity production due to planned maintenance activities, resulting in a RM5.1bil q-o-q decline in mining-related exports, and a surge in capital imports in line with the realisation of data centre-related investments,” he said.

In addition, Abdul Rasheed observed that higher travel receipts – recorded at RM95.3bil in 2024 compared to RM68bil the year before – driven by the continued rise in inbound tourism, are expected to contribute to a further narrowing of the services account deficit.

He said: “This encouraging development is expected to continue into 2026, following government initiatives such as enhancing flight connectivity and the Visit Malaysia 2026 campaign.

Notably, he added that the overall current account balance in the first half of this year (1H25) remained healthy at 1.7% of GDP (1H24: 0.9%).

For 2025 as a whole, the current account balance is expected to remain in surplus, within a range of 1.5% to 2.5% of GDP – supported by sustained global demand for electrical and electronic (E&E) products and continued growth in inbound tourism and travel.

Of interest, the 4.4% GDP growth in 2Q25 matched the rate seen in 1Q25, driven by the now familiar theme of robust domestic demand.

Household spending was higher, which the central bank governor attributed to positive labour market conditions and income-related policy measures, including the upward revision of the minimum wage and civil servant salaries.

“Of significance, both private and public investments recorded stronger expansion, supported by the realisation of new and existing projects.

“In the external sector, export growth was slower due mainly to lower commodities-related exports. This was partially offset by continued E&E exports and robust tourism activity,” Abdul Rasheed said.

At the same time, the central bank governor noted that import growth was higher, driven by strong demand for capital goods, reflecting increased investment activities.

On the supply side, he said growth was driven by the services and manufacturing sectors – the former supported by consumer-related and government services, and the latter by steady growth in domestic-oriented clusters.

“Overall growth was weighed down by a contraction in the mining sector amid lower commodity production,” Abdul Rasheed said.

Speaking on the GDP projection for the year, he said BNM had taken into consideration a range of possible outcomes from ongoing tariff negotiations, particularly assuming tariffs of between 25% and 30% in talks with the United States.

Abdul Rasheed pointed out that global trade is currently operating in a highly uncertain environment, where changes occur quickly.

“Under this kind of environment, forecasting is challenging.

“That is why we need an assumption that is strong enough for us to be able to capture possible growth rates for the country. So, 4% to 4.8% would probably capture the possibilities,” he added.

Importantly, he stressed there is no need for the central bank to revise its growth numbers, as the completion of negotiations has helped reduce uncertainty, balancing the risks and potential gains.

On that note, when asked if BNM is considering further overnight policy rate (OPR) cuts this year, following the 25-basis-point reduction in July, Abdul Rasheed offered the clearest hint yet by saying the central bank’s focus at the moment is on assessing the effects of the recent rate adjustment.

“The OPR cut (last month) was a precautionary move, with the intention to preserve Malaysia’s steady growth path, given the global uncertainty.

“Since then, we have seen some clarity emerge in terms of trade negotiations,” he said, before stressing that the economy remains on a strong footing and that the cut in July was meant to provide additional support for growth.

Separately, on inflation, Abdul Rasheed revealed that headline inflation moderated to 1.3% in 2Q25, while core inflation remained stable at 1.8% – compared to 1.5% and 1.8% in 1Q25, respectively.

“This was largely due to lower prices for fuel such as RON97 petrol and diesel, and slower price increases for food-related items, particularly fresh food and meals away from home,” he said.

Abdul Rasheed added that headline inflation is projected to remain moderate, averaging between 1.5% and 2.3% in 2025, amid moderate cost and demand conditions.