Malaysia's economy shows resilience amid global shocks, but challenges loom

New Straits Times

19 hours ago

KUALA LUMPUR: Malaysia's economy is demonstrating resilience in the face of global uncertainties, but experts warn that sustained growth will hinge on diversification, adaptive policies, and strong domestic demand.
Putra Business School Professor Dr Ahmed Razman Abdul Latiff said the country's gross domestic product (GDP) growth depends on its ability to diversify the economy, implement timely policy responses, and integrate globally through trade agreements.
While geopolitical tensions and supply chain disruptions can slow growth in the short term via inflationary pressures and reduced trade, political stability, robust domestic demand, adaptive supply chains, and effective policies can cushion these impacts and support medium- to long-term resilience, he noted.
Echoing this view, Socio-Economic Research Centre (SERC) executive director Lee Heng Guie said that despite a moderation in growth - with real GDP averaging 4.4 per cent in the first half of 2025 - Malaysia remains on track to meet Bank Negara Malaysia's revised full-year GDP estimate of 4.0 to 4.8 per cent.
He cautioned that the second half of 2025 and 2026 will be challenging as trade uncertainties and US tariffs continue to weigh on exports.
"Domestic demand will have to be hold firm amid rising cost of living and increased business costs. Positive labour market conditions and continued cash handouts will help the targeted B40 and low-income households.
"While the on-going implementation of projects and realization of approved investments are expected to keep positive investment momentum, it is to be expected some investors may adopt a wait-and-see approach to commit investment given the shift in trade policy due to the US's sweeping tariffs policy," Lee said.
UniKL Business School economic analyst Associate Professor Dr Aimi Zulhazmi Abdul Rashid said fiscal and monetary policies must be aligned to ensure the economy expands as planned.
If the government adopts an expansionary fiscal policy with a large budget to stimulate development, Bank Negara's monetary policy should complement it by ensuring access to cheaper funds for businesses and consumers, he said.
"Consequently, business and consumers expenditure will rise as well as fiscal spending by the government, these two components are significant contributors to the GDP growth.
"This will be able to balance the other two components of GDP, the shrinking trade surplus and the actual flow of FDI into the country, which are not in the government control directly," Aimi Zulhazmi said.
Aimi Zulhazmi said external trade is heavily influenced by international developments such as geopolitical tensions and major economies' trade policies, as seen with the recent tariff changes under Trump.
He said global trade slowed down to 2.5 per cent in 2025, providing the slowest decade growth since the 1960s.
"Malaysia among the top 30 trading nations is highly vulnerable to global events, with GDP growth disrupted during the pandemic years, 2020-2021 and then again in 2023 with only 3.6 per cent.
"The growth in 2023 was influenced by a challenging external environment, including slower global trade and a global tech downcycle.
"However, domestic demand and a resilient external position supported the economy," he added.
HOUSEHOLD DEBT REMAINS MANAGEABLE
Economists said household debt, which has reached RM1.65 trillion, remains sustainable for now.
Ahmed Ramzan said as long as the non-performing loan remains low and repayment rate is high as current status, it will remains sustainable.
"However, more efforts are needed to explore and champion alternative to debt financing which are already in existence," he added.
Lee said household debt growth was mainly driven by housing and car loans while there were moderate credit expansion in personal financing and credit cards as well as buy now and pay later (BNPL) .
On an aggregate basis, household financial assets are 2.1 times cover the household debts as of December 2024. The median debt-to-income (DTI) ratio, a measure of borrower leverage, was stable at 1.4 times.
"Some households with low financial buffers are more vulnerable to income and employment shocks, and could face greater difficulties to service their debt amid rising costs of living.
"The Credit Counselling and Debt Management Agency (AKPK) and banks are available to distress households and borrowers to seek for debt restructuring and repayment assistance," Lee added.