Detailed GDP data for the second quarter is expected to be released on August 15, 2025, which will provide further insight into the country's economic trajectory.

Despite positive trends, including improved employment and construction activity, analysts warn that tighter fiscal policies and declining commodity prices could slow economic momentum in the coming months.

Challenges also include declining commodity prices affecting the mining sector and slowing economic growth in major export markets like the US and China.

Despite the mixed signals from manufacturing, the overall economy showed resilience, with GDP growth surpassing expectations at 4.5% year-on-year in the second quarter, exceeding the Bloomberg median forecast of 4.2%.

Malaysia's manufacturing sector grew by 3.8% in the second quarter of 2025, a slowdown from 4.1% in the previous quarter, while the construction sector continued its strong run with an 11% expansion, marking the sixth consecutive quarter of double-digit growth.

The services sector's growth was an important driver, with wholesale, retail trade, and transportation leading the acceleration from 5% to 5.3%, highlighting the sector’s vital role in the economy.

This preliminary GDP figure of 4.5% was driven primarily by the services sector, which expanded by 5.3%, contributing significantly alongside the robust construction sector.

On a quarterly basis, the economy grew by 2.3% seasonally adjusted, up from 0.7% in the previous quarter, indicating a positive momentum despite some sector-specific slowdowns.

However, exports declined by 3.5% in June year-on-year, contrary to expectations of a 5.4% increase, while imports rose slightly by 1.2%, leading to a 1.2% decline in total trade.

Trade challenges persist due to potential US tariffs, with officials negotiating to reduce a proposed 25% import levy scheduled for August 1, 2025, amid broader concerns over global tariffs implemented by US President Donald Trump.

Analysts suggest that the decline in exports may reflect weakening external demand, although domestic demand remains strong and supportive of economic growth.

Looking ahead, Capital Economics anticipates further monetary policy easing later in 2025, even as the central bank recently cut interest rates by 25 basis points to support growth.