IMF now more optimistic on Malaysia's economy

Free Malaysia Today

4 days ago

The economy expanded 4.5% year-on-year in Q2 as resilient consumer demand offset weaker exports.
PETALING JAYA : The International Monetary Fund has revised upwards Malaysia's gross domestic product growth forecast even as Bank Negara Malaysia lowered its GDP projection this week.
Citing improved prospects across developing and emerging economies, the international financial watchdog upped its 2025 GDP forecast for Malaysia to 4.5% from 4.1% in its April outlook.
It also raised its 2026 GDP projection to 4%, a 0.2 percentage point increase from previous estimates.
The more bullish outlook for Malaysia's economy was in the July World Economic Outlook (WEO) released by IMF yesterday.
'For emerging markets and developing economies, growth is projected at 4.1% in 2025 and 4% in 2026,' the report said.
IMF also revised upwards its projection for global growth to 3% for 2025 and 3.1% for 2026. The 2025 forecast is 0.2 percentage point higher than in its April 2025 WEO, and 0.1 percentage point higher for 2026.
'This reflects stronger-than-expected front-loading in anticipation of higher tariffs; lower average effective US tariff rates than announced in April; and improvement in financial conditions, including due to a weaker US dollar,' it said.
IMF's optimistic outlook for the Malaysian and global economies contrasts with the more cautious stance adopted by the Malaysian central bank.
On Monday, BNM adjusted its 2025 GDP growth forecast to a range of 4% to 4.8%, down from the previous 4.5% to 5.5%. This means the pace of expansion this year will be slower than the 5.1% growth in 2024.
It cited global economic uncertainties and potential tariff impacts, noting that the outlook remains contingent on external conditions.
The Malaysian economy expanded by 4.5% year-on-year in the second quarter, slightly faster than the 4.4% growth in Q1 as resilient consumer demand offset weaker exports.
BNM governor Abdul Rasheed Ghaffour said the economy 'remains resilient' despite global uncertainties.
'This is, in part, the outcome of structural reforms that we have undertaken over the years,' he said.
A more realistic stance?
BNM's revised forecast takes into account various tariff scenarios, ranging from a continued elevation of US tariffs to more favourable negotiation outcomes.
The Donald Trump administration has threatened to raise import duties on Malaysian goods to 25% but left room to strike a deal before Aug 1.
It is probably the uncertainty over tariffs and its effects that has prompted BNM to adopt a more cautious position in its GDP projections.
Even the IMF acknowledged the risks to its economic outlook are 'tilted to the downside'.
'A rebound in effective tariff rates could lead to weaker growth. Elevated uncertainty could start weighing more heavily on activity, also as deadlines for additional tariffs expire without progress on substantial, permanent agreements,' its latest report stated.
It added geopolitical tensions could disrupt global supply chains and push commodity prices up.
'Larger fiscal deficits or increased risk aversion could raise long-term interest rates and tighten global financial conditions. This could reignite volatility in financial markets,' the IMF warned.