Malaysia’s economy expanded by 5.2% in 2025, supported by broad-based growth across all major sectors

• Early 2026 indicators (IPI up 5.9%, strong manufacturing and wholesale/retail trade, robust external trade) point to continued momentum.
• Inflation stayed low at 1.4% in February 2026, while producer prices fell 3.4%, indicating muted cost pressures.
• Weaker short-term sentiment and external shocks to trade, commodities and supply chains pose downside risks, including possible upward pressure on inflation via import costs.

Malaysia's economic outlook for 2025 expanded by 5.2% in 2025, slightly higher than 5.1% from the previous year, per the Department of Statistics (DOSM)'s latest Economic Statistics Review (MESR).

According to Chief Statistician of Malaysia, Dr Mohd Uzir Mahidin,, this increase was supported by broad-based growth across all major sectors, with the services sector remaining the main driver with a growth of 5.5%, followed by manufacturing (4.5%) and construction (12.2%).

"This performance was underpinned by resilient domestic demand with steady household spending, tourism and festive-related activities, stable labour market conditions and continued investment, particularly in construction and data centre-related activities," he added. 

Industrial Production Index (IPI) increases

Manufacturing

Malaysia’s Industrial Production Index (IPI) expanded by 5.9% in January 2026 (December 2025: 4.8%), supported primarily by a solid manufacturing performance, which grew 7.3%, and a 6% increase in electricity output.

On a month-on-month basis, the IPI recorded a marginal increase of 0.7% (December 2025: 0.2%).

Manufacturing sales came in at RM169.4bn in January 2026, up 7.1% year-on-year (December 2025: 6.4%). The electrical and electronics (E&E) segment remained the key growth driver, expanding 15.6%.

Compared with December 2025, manufacturing sales were slightly higher, rising 0.5% from RM168.6bn. Overall, industrial production continued to chart a positive path, underscoring sustained momentum in manufacturing-related activities.

Wholesale and retail

The wholesale and retail trade sector also registered continued growth, with total sales rising 7.3% year-on-year to RM159.8bn in January 2026, supported mainly by retail and wholesale segments.

At the same time, retail trade rose 6.1% to RM70.2bn, supported by higher sales in non-specialised stores, specialised stores, automotive fuels, and household goods.

Additionally, wholesale trade expanded 6.0% to RM70.8bn, led by household goods, other specialised wholesale activities, and food, beverages and tobacco.

Finally, motor vehicles remained the standout performer, surging 17.3% year-on-year to RM18.8bn, signalling firm consumer demand.

External trade grew strongly

External trade performance was robust in February 2026, with total trade climbing 9.5% year-on-year to RM245.2bn. Exports grew 10.8%, while imports increased 8.2%.

As a result, the trade surplus widened to RM16.7bn, an improvement of RM4.1bn from a year earlier. On a month-on-month basis, however, exports, imports, total trade and the trade surplus were lower compared to January 2026.

Inflation eased 

Headline inflation eased to 1.4% year-on-year in February 2026, reflecting slower price increases across most consumption categories, with insurance and financial services recording a 4.7% rise.

On a month-on-month basis, inflation ticked up 0.2%, largely due to higher prices in the housing, water, electricity, gas and other fuels group (0.7%).

Producer Price Index (PPI) declined further

The Producer Price Index for local production fell 3.4% year-on-year in February 2026, extending January’s decline. The drop was mainly attributable to weaker prices in agriculture (-8.7%), mining (-8.5%) and manufacturing (-2.7%).

On a month-on-month basis, Malaysia’s PPI for local production edged down 0.5% in February, reversing the increase seen in January. The month-on-month decline was driven by lower manufacturing prices and small decreases in water and electricity & gas supply, partially offset by price gains in mining and agriculture.

Labour market sustained a positive momentum

According to DOSM, Malaysia's labour market continued to show steady improvement in January 2026, with total employment edging up 0.1% month-on-month to 17.28mn persons (December 2025: 17.27mn). In tandem, the labour force participation rate rose slightly by 0.1 percentage points to 70.9%, indicating greater engagement in the workforce.

The number of unemployed increased marginally by 0.3% to 509,600 persons (December 2025: 508,000), while the unemployment rate held steady at 2.9%, unchanged from the previous month.

On the global front, the economic backdrop remains uncertain. In its World Economic Situation and Prospects report released in January 2026, the United Nations projected world output to expand by 2.7%, slightly below the estimated 2.8% in the previous year and still short of the pre-pandemic average of 3.2% recorded between 2010 and 2019.

However, DOSM noted that outlook is expected to become more pessimistic amidst escalating geopolitical tensions in West Asia, which have added pressure to energy markets, global supply chains and international investment sentiment. For open and trade-dependent economies like Malaysia, these external shocks — through commodity prices, trade flows and supply chain disruptions — could have implications for domestic growth.

Looking ahead, Malaysia’s economy is expected to stay on its growth path, with some support signalled by the Leading Index, which rose 0.6% year-on-year to 113.4 points in January 2026, largely driven by higher real imports of semiconductors and non‑ferrous metals. On a month-on-month basis, however, the index slipped 0.6%, signalling more cautious short-term sentiment. and pointing to more cautious near-term sentiment.

Overall, DOSM said Malaysia’s economic outlook is expected to be sustained, supported by continued domestic production and demand, favourable labour market conditions, and manageable inflation.

"Nevertheless, " it cautioned, global uncertainties, particularly geopolitical conflicts and rising volatility in global oil prices, may affect import costs and exert upward pressure on inflation in the near term."

Lead image / DOSM