Malaysia's economy is projected to continue growing, though at a slower rate, backed by strong underlying fundamentals, according to MIDF Amanah Investment Bank Bhd.

The Leading Index (LI), which serves as an important indicator of the country's economic direction, increased by 0.6% year-on-year (y-o-y) to 112.5 points in March 2025, up from 111.9 points in the same month last year (compared to a 0.1% year-on-year rise in February 2025).

In a note released on Monday, the investment bank stated that although a positive trade outcome with the United States could ease some trade-related pressures, the external landscape continues to be uncertain, Business Times reports.

“Given this, domestic economic growth is expected to remain the key driver of Malaysia's economy, moving forward.

“The smoothed long-term trend shows that the LI in March 2025 remains below 100.0 points,” it said.

MIDF noted that the improvement was primarily fuelled by strong double-digit growth in approved housing units (+27.8% year-on-year) and real imports of semiconductors (+22.3% year-on-year).

However, on a monthly basis, the Leading Index remained virtually unchanged (-0.04% month-on-month (m-o-m); February 2025: -0.02% m-o-m), indicating a second straight month of subdued momentum.

“The ongoing subdued and stagnant performance was attributable to the decline in the Bursa Malaysia Industrial Index (-0.2% m-o-m; February 2025: -0.1% m-o-m) and real imports of semiconductors (-0.2% m-o-m; January 2025: +0.3% m-o-m),” it added.

That said, the investment bank highlighted that the Coincident Index (CI), which gauges current economic activity, recorded a slower year-on-year growth of 1.4% (February 2025: +1.9% year-on-year), rising to 126.8 points compared to 125.1 points in March 2024.

“The sustained growth was underpinned by broad-based gains across all components of the CI, except for the real contributions to the Employees Provident Fund.

“On a monthly basis, the CI fell by -0.2% m-o-m during the month (February 2025: +1.8% m-o-m), returning to negative territory as seen in January 2025.”

MIDF went on to say: “The decline is mainly due to contraction in capacity utilisation in manufacturing (-0.3% m-o-m; February 2025: +2.3% m-o-m).”

“Both total employment and real salaries and wages in the manufacturing sector recorded a marginal decline of -0.1% m-o-m, following a flat reading in the previous month,” the bank added.