Malaysia risks RM11.6bil loss without swift trade action, economists warn

New Straits Times

24-04-2025

KUALA LUMPUR: Malaysia must take bold and strategic action to safeguard its economic future by deepening trade ties and reinforcing economic resilience, economists said.
In response to the International Monetary Fund's (IMF) downward revision of Malaysia's economic growth forecast, economist Dr Geoffrey Williams warned that without timely and effective policy responses, the country risks losing as much as RM11.6 billion in economic value.
"The downgrade is the cost of not getting a deal with the US through positive negotiations to reduce the trade barriers," he told Business Times.
"To mitigate this loss, Malaysia must focus on getting a deal to reduce or remove the 24 per cent reciprocal tariff and hopefully globally reduce the 10 per cent baseline tariff along with other countries," he added.
Williams said while the decision to rule out retaliatory tariffs is a positive step, adopting a stance that denies the existence of trade barriers, delays efforts to address US concerns, or defends domestic industries by maintaining those barriers could prove costly, potentially resulting in billions in lost economic value.
He added that diversifying markets and exploring new export products is a solid long-term strategy but will take too long to mitigate the economic costs this year and next year.
"So the strategy must be to negotiate positively in the remainder of the 90 days pause. This means cutting trade barriers into the Malaysian market.
"It is most likely that other countries will cut trade barriers and get a deal so Malaysia must follow that route. This will boost global free trade and may deliver positive outcomes for everyone," he said.
The IMF revised its outlook for Malaysia's economic growth, lowering its real gross domestic product (GDP) forecast for 2025 to 4.1 per cent from the earlier estimate of 4.7 per cent. This was part of a wider downgrade across the region.
For 2026, Malaysia's growth is now projected at 3.8 per cent.
Globally, the IMF trimmed its 2025 growth forecast to 2.8 per cent, a 0.5 percentage point decline from its January estimate.
According to the IMF, major shifts in policy are reshaping global trade and reigniting uncertainty, posing fresh challenges to the global economy.
"Since February, the US has introduced several rounds of tariffs targeting key trading partners, prompting retaliatory measures in some cases," IMF said in its April 2025 World Economic Outlook titled "A Critical Juncture amid Policy Shifts".
"Markets initially responded calmly, but the sweeping tariff imposition on April 2 led to sharp declines in major stock indices and a surge in bond yields. A partial market recovery followed after pauses and policy carve-outs were introduced from April 9."
The IMF emphasised that the global economy remains at a pivotal point. Although signs of stabilisation emerged throughout 2024 following years of volatility and disruption, challenges persist.
UOB Kay Hian Wealth Advisors Sdn Bhd head of investment research Mohd Sedek Jantan said Malaysia should expand trade with emerging markets in the Middle East, Africa, Latin America and the European Union to reduce reliance on traditional partners like China and the US.
He pointed out that the Middle East and North Africa (Mena) region is projected to grow 3.4 per cent in 2025 and 4.1 per cent in 2026, offering opportunities for Malaysia's electronics and palm oil exports.
Similarly, Latin America's growth is expected to rise to 2.5 per cent in 2025, supported by robust domestic demand, making it a viable market for Malaysia's manufactured goods.
"Countries to export goods leveraging their abundant resources, such as Malaysia's electronics and commodities, to diverse markets, thus spreading risk and boosting resilience," he added.
To enhance export competitiveness, Sedek said the country must shift toward high-value-added products, particularly in electronics, green technology and digital industries.
The nation also should strengthen diplomatic ties within Asean and with Middle Eastern partners as global trade increasingly shifts toward friendshoring, favoring trade with allied nations.
Asean's growth is projected at 4.6 per cent in 2024 and 4.4 per cent in 2025, contributing significantly to global growth.
Sedek said Malaysia's strategic position within Asean and initiatives like the Indonesia-Malaysia-Thailand Growth Triangle enhance regional trade integration.
"Diplomatically, Malaysia's balanced approach in navigating US-China trade tensions has bolstered its trade relationships, with exports to both nations rising despite global tensions.
"By deepening Asean integration and pursuing trade agreements with Gulf Cooperation Council countries, Malaysia can secure stable markets, mitigating risks from geoeconomic fragmentation," he said.
Sedek also suggested that the country should focus on boosting domestic demand and reducing its reliance on foreign investment and trade to better cushion against external shocks.
He said Madani Economy framework and 2025 Budget prioritise fiscal consolidation, with the fiscal deficit reduced to 4.3 per cent of GDP in 2024, freeing up resources for social spending and infrastructure.
"Adopting Keynesian economic principles, Malaysia should continue with targeted fiscal stimulus, such as subsidies for vulnerable communities and investments in digital infrastructure, to boost domestic consumption.
"While complete self-sufficiency may be impractical, reducing dependence on foreign capital can be achieved through policies like the National Energy Transition Roadmap, which aims to attract domestic and regional investment in sustainable industries," Sedek added.