Malaysia’s economy expanded in line with forecasts in Q2 according to official figures released on Friday, although the central bank cautioned that the outlook remains uncertain due to US tariff pressures.

Gross domestic product rose 4.4% year-on-year between April and June, Bank Negara Malaysia (BNM) and the Department of Statistics reported, maintaining the same growth rate as Q1.

The result was just below both the 4.5% growth forecast in a Reuters poll and the government’s earlier estimate.

The data showed that on a seasonally adjusted quarter-on-quarter basis, the economy expanded 2.1%, up from 0.7% in the preceding quarter.

BNM attributed the stronger growth to resilient household consumption and favourable labour market conditions, while noting that economic forecasting remains difficult given the uncertainty surrounding US tariffs.

“Growth could move in different directions... we are operating in a different environment where changes happen very quickly,” according to BNM Governor Abdul Rasheed Ghaffour.

Earlier this month, a 19% tariff on Malaysian exports to the US came into effect, though certain products remain exempt while US laws are under review.

A key concern for Malaysia is President Trump’s proposal of a 100% tariff on semiconductor imports from firms lacking US-based manufacturing or investment plans.

As a critical hub in the global semiconductor supply chain, Malaysia has cautioned that such tariffs on its chip exports to the US could severely affect its economy, Reuters reports.

Abdul Rasheed noted that overall export growth is likely to remain moderate in the second half of 2025, though demand for electrical and electronic products, along with stronger tourism, should provide support. He added that tourist arrivals have already returned to pre-pandemic levels.

The central bank revised its 2025 growth outlook last month to 4%–4.8%, down from the earlier projection of 4.5%–5.5%, with Abdul Rasheed noting the range was “broad enough” to account for potential impacts of US tariffs.

In July, the bank also reduced interest rates for the first time in five years, aiming to “pre-emptively preserve” growth in the export-driven economy.

Furthermore, Mohd Afzanizam Abdul Rashid, chief economist at Bank Muamalat Malaysia, said the recent rate cut and a reduced fiscal deficit provide policymakers with some room to address the anticipated slowdown in the second half of the year.

He added that the fiscal deficit stood at 4.2% of GDP in the first half, compared with 5.5% during the same period in 2024.

“This would give them some flexibility to spend on areas relating to cash transfers program which can have an immediate impact on growth,” he said.