MARC Ratings projects Malaysia's 2025 GDP growth at 4.4%

The Sun

11-07-2025

PETALING JAYA: Malaysian Rating Corporation Bhd (MARC Ratings) forecasts the Malaysian economy to grow by 4.4% in 2025, down from 5.1% in 2024, as external trade uncertainties dampen export momentum.
Nonetheless, domestic demand remains resilient, driven by labour market improvements, accommodative policy settings, and tourism recovery.
The rating agency also noted that the global economic growth is expected to moderate in the second half of 2025 as trade tensions and geopolitical risks weigh on sentiment.
MARC Ratings noted that the US's sweeping tariffs have reignited protectionist concerns, contributing to slower global growth.
The US economy contracted by 0.2% in the first quarter of 2025, with the Purchasing Managers' Index for both manufacturing and services falling below the neutral 50 mark in May. Consumer sentiment also weakened, with the University of Michigan Consumer Sentiment Index dropping to 52.2 in May from 74.0 in December 2024.
US President Donald Trump on Monday announced new tariff rates ranging from 20% to 40% on 14 countries, effective Aug 1, superseding the initially imposed tariff rates.
MARC Ratings said for Malaysia, the US imposed tariffs of 25%, signalling the need for greater reciprocity in future negotiations.
'Over time, US tariffs are anticipated to settle significantly higher than the long-term global average rate of 2.7%, potentially in the high teens,' it said.
MARC Ratings also noted that the US outlook remains uncertain, depending on the progress of disinflation, the Fed's policy stance, and clarity surrounding fiscal and trade policy directions.
'In contrast, the eurozone economy expanded by 1.5% in Q1 2025, benefiting from front-loaded trade activities during the US tariff pause.
'Key economies such as Germany also saw gains from increased defence spending and industrial policy shifts,' MARC Rating noted.
MARC Ratings said China continues to face weak domestic demand and persistent deflation, with May's Consumer Price Index at -0.1%. 'However, a recent trade deal with the US, alongside ongoing stimulus and a gradual consumption rebound, may help China reach its 'around 5%' growth target.'
For Malaysia, MARC Ratings said the wholesale and retail trade index grew 4.8% year-to-date (YTD) through April, up from 3.6% in the same period last year.
Construction rose 14.2% in first-quarter 2025, while agriculture rebounded by 0.6%.
However, lingering external uncertainties prompted Bank Negara Malaysia (BNM) to cut the Overnight Policy Rate from 3% to 2.75% on Wednesday.
MARC Ratings said BNM is expected to retain policy flexibility and respond accordingly to incoming data.
Malaysia's inflationary pressures remain contained, with headline inflation easing from 1.7% in January to 1.4% in April.
The expanded Sales and Service Tax (SST), effective July 1, is expected to cause only mild price increases, as essential items remain exempt.
Meanwhile, lower oil prices – Brent crude is projected to average US$70 per barrel – are expected to cushion inflation.
As a result, MARC Ratings has revised its 2025 inflation forecast to 2.3% from 2.6% previously.
On bonds, MARC Ratings stated that the Malaysian Government Securities (MGS) experienced strong demand in 1H2025, supported by healthy fundamentals and dovish pivots by major central banks.
Cumulative net foreign debt inflows reached RM26.9 billion between January and May, driving MGS yields 15–42 bps lower.
'These factors contributed to a 5.3% YTD appreciation of the ringgit as of mid-June,' it said.
MARC Ratings opines that these trends may moderate in the second half of 2025 amid ongoing external uncertainties.
Nevertheless, structural reforms under the 13th Malaysia Plan, SST adjustments and anticipated Fed easing could help mitigate downside risks.
'We expect the 10-year MGS yield to anchor around 3.50% and the ringgit to approach RM4.25/USD by year end,' the rating agency said.