Malaysia’s economy grew exceptionally well this year, at 5.6%, to the surprise of us and most analysts. However, the economy’s performance is unlikely to be as strong next year, with growth projected to slow to 4.3%. But that largely reflects shifting base effects. Momentum looks set to remain resilient, preventing the central bank from easing.
Key Points:
- Malaysia’s economy grew by 5.6% this year, but growth is expected to slow to 4.3% next year due to shifting base effects.
- The export sector, particularly semiconductor exports, is expected to continue performing well.
- Uncertainty about tariffs from the Trump administration poses a risk, but immediate threats are limited.
- Bank Negara Malaysia is likely to maintain its current policy rate due to inflationary pressures and a strong US dollar environment.
- Inflation is expected to rise in the second half of 2025 due to domestic fiscal measures.
The export sector, particularly semiconductor exports, is expected to maintain its strong performance. Global demand for electronics is projected to remain robust into the next year, indicating that the peak of this trend is still some time away. Even when the peak is reached, Malaysia’s position at the lower end of the chip supply chain suggests its peak will occur later, with a less severe downturn to follow. While uncertainty surrounding Trump’s tariffs adds some pressure to the outlook, immediate risks appear limited.
Malaysia exports relatively few products from the industries targeted by these tariffs. The primary risk lies in electronics and electrical products, but until the U.S. successfully reshapes its supply chains domestically, it will continue to depend on reliable partners like Malaysia.Looking ahead, Bank Negara Malaysia is likely to diverge from the global trend of monetary easing in 2025. The ringgit has faced renewed pressure, which is expected to persist in the context of a strong U.S. dollar environment. Inflationary pressures are anticipated to intensify in the second half of the year due to domestic fiscal policies. Although Malaysia’s growth momentum may moderate, it is still expected to remain at healthy levels.
Source: Oxford Economics
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