In the early part of 2025, the commonly used description for growth in the economy, production, export, sectoral profitability, corporate earning, etc. have been moderation.
The first-quarter (1Q25) gross domestic product (GDP) advance estimate in April came at a one-year low of 4.4%. Ever since the trade shock from Trump 2.0 trade policies, economists are growing more cautious on the outlook for the economy.
Maybank Investment Bank Research put the full-year real GDP forecast as a slower growth of 4.3% in 2025 (2024: 5.1%), followed by further moderation to 4% in 2026. The unpredictability of the US trade policies weighed in heavily with semiconductor as a key area of concern. .
SPI Asset Management managing partner Stephen Innes viewed the economy was losing momentum before the trade turbulence. Industrial activity has been waning and investment activities under stress. The slowdown attributed to tariff-related distortions and whether it has longer-term structural risk need be ascertained.
For Malaysia with it's deep trade link to China, the deflation-prone Chinese economy could be another drag as it struggled to reignite demand and stabilise prices. Given the exogeneous factors, BNM decided to hold on to their revised growth forecast till clearer picture on the trade front.
The Star report today:
Growth likely to moderate this year
By ELIM POON
ECONOMY
The Star Monday, 19 May 2025
PETALING JAYA: While downside risks to Malaysia’s growth linger, factors such as resilient private consumption, a diversified trade base and continued demand for electrical and electronics (E&E) goods, are expected to continue to lend support to the economy.
All eyes, however, are still on how trade negotiations will unfold between economies, including Malaysia, with the United States, following the major easing of tariff levels between the latter and China.
Sunway University economics professor Yeah Kim Leng said the outcome of the country’s ongoing trade negotiations remains relevant to this year’s growth outlook despite the anticipated slowdown, as a successful resolution could help cushion the impact from tariffs.
“If the 24% reciprocal tariff on Malaysia’s exports to the United States is not reduced substantially, the impact on the Malaysian economy will be moderately severe, especially for the affected small and medium-sized industries.
“With exports to the United States amounting to 15% of total exports, a successful outcome of the ongoing trade negotiations will not only ensure a positive contribution of exports to Malaysia’s growth prospects this year, but also add clarity to its investment outlook given the sizable US investment stock and pipeline in the country,” he told StarBiz.
HSBC Asean economist Yun Liu said while the trade negotiations are still up in the air, at least the direction of a trade de-escalation is moving in a positive direction.
“For Asean, in particular, the focus is likely to be on the sizeable trade surplus with the United States, and its connection to regional and global supply chains. Overall, we expect Malaysia’s growth to be around 4.2% for 2025,” she said.
With escalating trade tensions and associated uncertainties, Bank Negara expects growth in 2025 to be slightly lower than the 4.5% to 5.5% range forecast it announced in March.
Real gross domestic product (GDP) growth moderated to 4.4% in the first quarter of 2025 (1Q25), in line with the advance estimate. In 2024, GDP registered an expansion of 5.1%.
“This was supported by sustained household spending amid positive labour market conditions and policy measures; steady expansion in investment activities; continued export growth supported by E&E exports as well as vibrancy of tourism activities,” chief statistician Datuk Seri Mohd Uzir Mahidin said at a recent press briefing on the release of the 1Q25 GDP data.
While Bank Negara governor Datuk Seri Abdul Rasheed Ghaffour acknowledged the need to revise the GDP growth forecast for 2025, he noted a revision should not be made based on assumptions.
“This is important because we do not want to come up with a revision knowing that we need to revise it again the next day. This may also not be positive for businesses because it will add further uncertainty to the already heightened uncertain environment.
“While we do have an internal view, the global environment is still very fluid – trade negotiations are still ongoing and the outcomes remain uncertain, although we have seen positive outcomes, this can affect our outlook. As we get more clarity on the outcomes of the ongoing trade negotiations, we will finalise the new forecast and announce it in one to two months time,” he said.
In 1Q25, exports expanded by 4.4%. The central bank expects exports to see some moderation this year amidst the uncertainties.
Nevertheless, Yeah said the country’s exports to the United States grew by 36.5% in 1Q compared with the same quarter last year, significantly higher than the 4.4% rise in the country’s total exports.
“The export pick-up is likely to continue in the following quarter before the end of the 90-day pause on the United States’ 24% reciprocal tariff hike imposed on Malaysia,” he said.
The central bank warned Malaysia, as a trading nation, will not be spared from the impact of US tariffs. There are, however, factors like the front-loading of exports and tariff exemption on key products like semiconductors that will help to cushion the impact from tariffs.
“About 32% of our exports to the United States are exempted from tariffs, including key products such as semiconductors. Further, 83% of our exports to the United States are price inelastic, which means the quantity demanded for our exports will not drastically change in the short term when prices increase due to tariffs. Examples of these products include electrical machinery, computer hardware and optical and scientific equipment,” Abdul Rasheed said.
Front-loading activities, particularly in E&E exports, have supported growth in 1Q25, as firms try to soften the impact of tariffs. Abdul Rasheed expects demand for E&E to continue, supported by the country’s entrenched position in the global value chain and AI-related demand. Nonetheless, he foresees that “there could be some normalisation happening”.
Following the special parliamentary session on May 5, the government pledged to provide up to RM1.5bil in additional loan guarantees and financing for small and medium enterprises (SMEs) affected by US tariff measures.
Yeah said the early response in providing financing access for SMEs is “laudable”. However, the further rollout of specific and targeted support from the government will need to be assessed after the conclusion of the negotiations, notably on the economic impact of the tariff levels and the nature of trade concessions and restrictions.
“Rather than mounting a major fiscal stimulus needed to offset a global slowdown, Malaysia’s policy makers can focus on targeted support for affected industries while rolling out the initiatives planned for this year to sustain growth, strengthen fiscal resilience, improve wages and productivity and enhance administrative efficiency and social support systems,” he said.
Yeah also concurred with the central bank that it is important to double down on reform measures to further strengthen the resilience of the economy. This will not only signal the resilience of the economy but also establish the competitive foundations for the country to sustain its high-income, inclusive growth trajectory.
“With implementation the overriding policy focus in the mid-term of the current administration, a greater urgency is observed in the various ministries to implement the initiatives spelt out in the various development plans and sectoral blueprints,” he said.
In the face of President Donald Trump’s negotiated trade regime, Yeah said the structural reforms to strengthen fiscal resilience, accelerate structural upgrading, raise productivity and competitiveness, improve human capital development and fortify social safety nets are expected to continue regardless of any changes in response to the said regime.
“The refinement needed is to reduce dependency on the United States where feasible while taking steps to reduce friction and avoid conflicts in order to forge a ‘win-win’ economic relationship with a superpower, be it the United States, China or other economies,” he said.
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