Economists Lower Malaysia's GDP Growth Forecast To 4.5 Pct, Remain Confident In Economy's Resilience

By Durratul Ain Ahmad Fuad

KUALA LUMPUR, May 5 (Bernama) -- Economists revised downwards Malaysia’s 2025 gross domestic product (GDP) growth to 4.5 per cent due to the debilitating tariffs implemented by the United States (US), but remained confident in the economy’s resilience.

However, they emphasised that the country must pull up its socks to scale up economic activities and find new markets to counter America’s trade indiscretion.

Of crucial importance is upgrading manufacturing and industrial activities, diversifying export markets under new free trade agreements, allocating more funds to automation, research and development and building up sectors like artificial intelligence, green tech and cybersecurity.

The economists, who revised GDP growth down to 3.5 to 4.5 per cent from the government’s previous forecast of 4.5 to 5.5 per cent, said Malaysia must not give away too much in areas such as data sovereignty, intellectual property, and control over the tech sector in pursuing negotiations on tariffs with the US.

Nevertheless, they concurred with Prime Minister Datuk Seri Anwar Ibrahim, who said during his special parliamentary meeting on tariffs today that Malaysia has the resilience buttressed by its strong fundamentals and proactive fiscal management.

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However, they don’t discount the 24 per cent tariff imposed on Malaysia, having adverse effects on semiconductors, manufacturing, businesses, and small and medium enterprises (SMEs), which could disrupt jobs and threaten investment flows, especially from American firms.

Describing the situation as dynamic, Anwar, who is also the finance minister, explained that it is highly likely the country will not achieve the previous 2025 GDP growth forecast of between 4.5 per cent and 5.5 per cent.

Bank Muamalat Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid noted that the International Monetary Fund (IMF) and World Bank have recently revised their GDP growth estimate for Malaysia to 3.9 per cent and 4.1 per cent, respectively. 

“As such, the new GDP forecast will be lowered to account for the tariff shock. This will set the tone for this year’s Budget 2025 allocations, especially in respect to the speed of (fiscal reforms) implementation and perhaps, possible revision to the fiscal deficits to GDP ratio target of 3.8 per cent,” he told Bernama.

Mohd Afzanizam pointed out that Malaysia is an open economy, and the US is one of Malaysia’s main trading partners.

He said the tariff shock could potentially reduce the demand from the US, as import costs from Malaysia and the rest of the world will go up.

“The direct effect would be on our exports to the US, the export-oriented manufacturing sector production, and workers who engage directly with the US demand.

“The other effect will be on market sentiment in the financial markets, businesses and consumers, affecting investment and consumption decisions.

“So, it will have a direct impact on growth. Perhaps the new GDP growth target can range between 3.5 per cent and 4.5 per cent,” he added.

Meanwhile, UOB Kay Hian Wealth Advisors Sdn Bhd investment research head Mohd Sedek Jantan agreed with Anwar’s statement that Malaysia’s solid economic fundamentals have enabled the country to withstand current global challenges.

“Despite external headwinds, Malaysia continues to demonstrate resilience, supported by diversified trade, stable financial institutions, and proactive fiscal management.

“This aligns with my forecast GDP revision of 4.8 per cent (forecast in February 2025) to 4.5 per cent,” he said.

Diversifying trade partners and upgrading industries

While acknowledging ongoing serious discussions about a potential bilateral trade agreement that could secure long-term benefits for both Malaysia and the US, Mohd Sedek emphasised that Malaysia must also remain realistic about its expectations.

“If Malaysia can’t secure those exemptions, the impact could be painful. Electronics make up half our exports to the US, and we’re part of a global semiconductor supply chain.

“Tariffs could hurt margins, disrupt jobs, and threaten our investment flows, especially from the US tech companies. SMEs, which make up nearly all our businesses, are especially at risk,” he said.

Mohd Sedek said diversifying trade partners through ASEAN, the Regional Comprehensive Economic Partnership (RCEP), the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), and deeper ties with China, India, and the European Union could give Malaysia more negotiating power with the US.

“At home, we need to double down on upgrading our industries. The Digital Transformation Fund, announced in Budget 2025, is a good start.

“But we need to ensure that funding goes into automation, research and development, and building up sectors like artificial intelligence, green tech and cybersecurity. These are the industries that will move us up the value chain and help us escape the middle-income trap,” he added.

Mohd Sedek stressed that any negotiations with the US must be approached carefully.

“We can’t afford to give away too much, especially regarding data sovereignty, intellectual property, or control over our tech sector.

“Having a strong fallback position allows us to push back when needed and avoid deals that don’t serve our national interest,” he said. 

Addressing the impact of non-tariff barriers in the agriculture sector

The Ministry of Investment, Trade and Industry (Miti) has appointed its deputy secretary general (trade), Mastura Ahmad Mustafa, one of its most experienced senior civil servants, as Malaysia’s chief negotiator for the upcoming formal tariff negotiations with the US.

The US has also named one of its assistant US trade representatives (USTR) to lead the talks, with both sides agreeing to begin discussions after Malaysia’s Cabinet gives the green light.

According to MITI, among the key focus areas are reducing tariffs and addressing non-tariff barriers, particularly in agriculture and Malaysia’s trade surplus with the US, which currently stands at US$25 billion (RM108.12 billion).

MITI said Malaysia has already reduced its trade imbalance by almost half over the last four years, from over US$40 billion to US$25 billion. 

Regarding how addressing non-tariff barriers in the agriculture sector impacts domestic producers and overall trade efficiency between Malaysia and the US, Mohd Afzanizam said that based on USTR reports on foreign trade barriers on March 31, 2025, strict implementation of halal certification has taken a toll on the US beef exports to Malaysia. 

“If such issues can be addressed, it will improve our beef supply as Malaysia could source more beef from the US. Our self-sufficiency ratio for beef stood at 15.9 per cent in 2023. 

“Malaysia needs a sizeable share of beef imports in order to meet the local demand. It really depends on the type of agri-products, whereby addressing the non-tariff barriers would mean improving access to more supplies from abroad,” he said. 

Mohd Afzanizam said the electrical and electronics sector and certain commodities such as palm oil and liquefied natural gas have contributed to Malaysia’s trade surplus. 

“Crude petroleum has been recording trade deficits for three years in a row. 

“Malaysia has been relying on imports for other products such as agri-food and certain machinery equipment. Such a trend suggests that the country needs to improve innovation, diversify its export product range and increase complexity in economic activities,” he said.

Hence, Mohd Afzanizam said the decline in Malaysia’s trade surplus serves as a reminder that the country needs to scale up its economic activities. 

Mohd Afzanizam added that the surplus in Malaysia’s trade balance fell to RM136.8 billion in 2024 from RM215.2 billion in 2023 and RM256.2 billion in 2022.

-- BERNAMA