Moderate growth path

The Star

21-07-2025

PETALING JAYA: Malaysia's economy is expected to remain on a moderate growth path through 2025, supported by resilient domestic demand but challenged by mounting global trade tensions, according to research houses.
Despite the encouraging 4.5% year-on-year expansion in the second quarter of 2025 (2Q25) advance estimates, released by the Statistics Department on July 18, analysts cautioned that external uncertainties – especially ongoing tariff negotiations with the United States – could cap the upside for full-year growth.
Hong Leong Investment Bank (HLIB) Research said that domestic demand would 'remain the key growth driver, underpinned by a healthy labour market and supportive government policy measures.'
It also noted the role of rising tourism activity – evident in a 10.5 million tourist arrival count from January to May – and improving investment trends as key pillars of growth.
'The continuous improvement in tourism activity and healthy investment pipelines will provide further support to overall momentum,' it said.
However, the research house warned that the country's growth prospect faces mounting pressures from an uncertain global environment, particularly due to the ongoing US-Malaysia trade negotiations.
It maintained its 2025 gross domestic product (GDP) forecast at 4% and projecting no change to the overnight policy rate (OPR) for the rest of the year.
Similarly, CIMB Research highlighted domestic demand's resilience but flagged a more cautious trajectory for the rest of the year.
'Overall, the 2Q25 advance GDP figures reaffirmed domestic demand as the key growth anchor, offsetting persistent external sector headwinds,' it said.
The economy expanded by 4.4% in the first half of 2025 (1H25), a moderation from 5% in 1H24.
CIMB Research kept its GDP forecast unchanged at 4.3%, but warned: 'Should existing US tariffs of 25% remain in place beyond the Aug 1 deadline, we estimate that the GDP growth could ease further to around 4%, mainly due to a potential drag on external demand.'
CGS International (CGSI) Research took a more cautionary tone regarding the external environment.
'We suspect that the softening growth in 2Q25 marks the start of a slowdown in external demand,' it said, citing the implementation of revised US tariffs.
However, CGSI Research acknowledged potential reprieve, adding: 'We think that tariff execution date remains a moving goal post, based on US President Donald Trump's open stance on negotiations.'
Domestically, it pointed to labour reforms, stable inflation, and tourism as buffers and maintained a 2025 GDP growth projection of 4.2%, down from 5.1% in 2024.
TA Research also maintained a steady outlook, holding its GDP forecast at 4.4%.
While it recognised headwinds from trade frictions, it highlighted supportive domestic conditions.
'The recent cut in the OPR is expected to provide a boost to economic activity, particularly through improved consumer and business sentiment in 2H25,' the research house said.
BIMB Research provided a range-bound estimate, placing maximum potential GDP growth at 4.5% for 2025, though citing 4% as a more likely baseline given downside risks.
'Slowdown of exports of goods and coupled with slight moderation on investment activities are the dragging factors for this revision,' it said.
It added that despite tariff exclusions and pauses, growth is subjected to direct and indirect effects of the heightening global trade war.
The finalised 2Q25 GDP figures are scheduled for release on Aug 15, and will be closely watched for further insights into the country's economic trajectory amid global volatility.