Domestic demand will remain key driver of Malaysia's economic growth: Amro

The Sun

6 days ago

SINGAPORE: Malaysia's economy continues to demonstrate resilience in 2025, underpinned by strong domestic demand, robust investment activity and favourable labour market conditions, despite pressures from global trade tensions and policy uncertainty.
Asean+3 Macroeconomic Research Office (Amro) chief economist Dong He stated that if the United States' reciprocal tariffs take effect from Aug 1 at the current rate of 25%, Malaysia's gross domestic product growth could fall from 5.1% in 2024 to 4.2% in 2025, and further to 3.8% in 2026.
'This reflects the direct impact on Malaysia's exports to the US, the indirect effects through intermediate goods sent to other countries destined for the US, and the broader slowdown in global trade growth. Nonetheless, domestic demand will remain the key driver of growth,' he told Bernama.
He noted that front-loaded exports had supported economic momentum earlier in the year. At the same time, key sectors such as information and communication technology and manufacturing remain active, bolstered by data centre investments and industrial diversification.
However, the outlook for the second half of the year and beyond remains clouded by external headwinds, particularly the outcome of ongoing US trade negotiations.
To maintain momentum, He said Malaysia's policy priorities should include sustained diplomatic engagement with the US on trade issues, diversification of export markets, and greater emphasis on the services sector, which is typically less exposed to protectionist measures.
He added that accelerating structural reforms remains essential, especially through the implementation of the New Industrial Master Plan 2030 and the National Energy Transition Roadmap.
'Regionally, the Johor-Singapore Special Economic Zone (JS-SEZ) could emerge as a strategic advantage, catalysing cross-border investment and innovation.
'US tariffs could enhance the JS-SEZ's appeal, particularly if Singapore faces much lower tariffs than countries like Vietnam and Mexico,' He said.
He added that the strong commitment to collaboration demonstrated by both the Singaporean and Malaysian governments boosts confidence in the zone's prospects, particularly in a volatile global environment shaped by rising protectionism.
'Together, the zone's economic value proposition and political backing can attract foreign investors looking to establish a base in Asean,' He said.
He noted that for the JS-SEZ to succeed, several challenges must be tackled, including cross-border movement of people and goods, infrastructure in southern Johor, wage gaps, labour shortages, and policy continuity, among others.
'If successful, the JS-SEZ can serve as a blueprint for future regional integration initiatives. For example, it could inspire similar cross-border economic zones between Thailand and Laos or Vietnam and Cambodia,' he said. – Bernama