Bank Negara seen holding GDP target despite softer second half
KUALA LUMPUR: Bank Negara Malaysia is expected to keep its full-year gross domestic product (GDP) target intact despite an anticipated slowdown in the second half of the year, economists said.
They pointed to robust services and construction activity, which are likely to anchor growth in the July–December period and offset softer manufacturing and weaker mining output.
The central bank, together with the Department of Statistics Malaysia (DOSM), will release the second-quarter (Q2) 2025 GDP data tomorrow.
Socio Economic Research Centre (SERC) executive director Lee Heng Guie said the country's Q2 GDP is likely to come in close to DOSM's advance estimate of 4.5 per cent, possibly around 4.4 per cent, supported mainly by services and construction.
"We're already seeing some slowdown in manufacturing, while mining is contracting more sharply due to weaker gas and petroleum output.
"Services are still holding up at around five per cent, supported mainly by restaurants, transport, storage, communication, real estate and business services," he told Business Times.
Lee said construction is expected to post double-digit growth, albeit slightly lower than in the first quarter.
Looking ahead, he cautioned that exports will likely remain a drag on the economy amid the newly implemented 19 per cent tariff, ongoing United States-China trade tensions and slowing global demand.
"There's a lot of uncertainty, particularly over China's final tariff outcome. This could intensify competition pressures for Asean exporters to the US market," he said, adding that May and June exports had already declined as front-loading activities tapered off.
He noted that weaker US consumer spending would directly impact Malaysia's exports, though domestic consumption should stay resilient, aided by the government's RM100 cash handout to all citizens at the end of August, worth RM2.2 billion.
Lee maintained his full-year GDP forecast at four per cent, implying a slower second half.
"If there is an upside surprise, GDP could still fall within the 4 to 4.5 per cent range, but 4.5 per cent would be a stretch, more likely around 4.1 to 4.3 per cent," he said.
Lee added that Bank Negara's recent 25-basis-point cut in the Overnight Policy Rate (OPR) was a pre-emptive move to prevent growth from slipping below four per cent, and he does not expect further cuts this year.
OCBC senior Asean economist Lavanya Venkateswaran also expects Bank Negara to maintain its four to 4.8 per cent GDP growth target when releasing the second quarter figures, though she sees growth slowing to 3.5 per cent on a yearly basis in the second half from 4.4 per cent in the first half.
"The impact of export front-loading to the US will fade, and uncertainty will hinder investment plans," she said.
Lavanya added that recession risks remain low as domestic conditions are supported by strong labour markets and ongoing reform efforts.
OCBC is pencilling in another 25-basis-point rate cut in the second half on expectations of a sharper slowdown, though Lavanya noted that if the deceleration is delayed into early 2026, the cut could be pushed into the first half of that year.
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