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New Straits Times
21 hours ago
- Business
- New Straits Times
Malaysia's economy shows resilience amid global shocks, but challenges loom
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.
The Star
12-08-2025
- Business
- The Star
Muted growth likely in 2H25
PETALING JAYA: China's response to the final tariff rate imposed by the United States could have a profound impact on the Malaysian economy. With the outcome of tariff talks between the two countries now delayed for another three months, the fear now, according to Socio-Economic Research Centre (SERC) executive director Lee Heng Guie, is that Beijing will take aggressive measures to maintain its market share in the United States. This may entail price dumping and undercutting, which would put pressure on Malaysia's exports. 'If China ends up with a tariff structure similar to countries like Malaysia, Vietnam, Thailand and Indonesia – around 19% to 20% – the competition will be even tougher for Malaysia. 'Even if the tariff imposed by the United States on China is higher, it also depends on how high, because even before tariffs, China has been very competitive in most markets,' Lee said during SERC's Malaysia Quarterly Economy Tracker (April to June) 2025 media briefing yesterday titled 'The Future Ahead: Malaysia in a Changing Landscape'. Lee noted that Chinese exporters have economies of scale and government support in the form of subsidies, export rebates and other incentives. 'This allows them to undercut prices in a bid to gain more market share in the United States,' he said. Lee added China could also engage in price wars to sell its products in other markets to help offset its lower sales in the US market, should it end up securing a relatively higher tariff from Washington. China's economy still remains challenging looking ahead and is projected to slow further in the second half of 2025 (2H25), Lee said, as the trade tariff impact continues and weakening consumer sentiment amid lingering risks in the property sector. On Monday, the Trump administration extended its tariff truce with China for another 90 days to Nov 10. This move keeps US tariffs on Chinese imports at 30%, while Chinese duties on US goods remain at 10%. Without the extension, Chinese imports into the United States would have faced tariffs of 145%, while US goods entering China would have been hit with a 125% rate. These tariffs were set to resume on Tuesday. SPI Asset Management managing director Stephen Innes said the tariff truce 'isn't peace, it's halftime'. 'The scoreboard hasn't changed much, but both sides are in the locker room drawing up plays for the next quarter. The sledgehammer hasn't been put back in the closet – it's just leaning against the wall, waiting for November,' he said in a statement. Lee stressed that halting trade with the United States is not feasible and reduced exports to this key market would directly impact Malaysia's overall export performance. This is given that the United States is Malaysia's third-largest trading partner, accounting for 11.3% of the country's total trade in 2024. It is also Malaysia's second-largest export destination and one of the top-five sources of foreign direct investment (FDI). 'The tariff on local furniture exports, for instance, was 0% previously, but now it has been raised to 19%. Manufacturers may not be able to adjust immediately and this will affect their profit margins and overall profitability. 'However, they have to find ways to mitigate the impact by improving their costs and efficiency,' he said. Lee said the country's exports are expected to remain weak in 2H25 and 2026 due to the impact of the US sweeping tariffs on the global economy and trade flows. Malaysia's export performance has been on the decline in the last two months. 'Exports remain in cautious territory, with a growth of 3.8% in the first six months of the year. For the full year, exports are expected to decline significantly and could even register a slight contraction. 'Exports' 'front-loading' effects are expected to fade in 2H25,' he said. On the whole, Lee said Malaysia is expected to sustain 'moderate growth' in 2H25 and 2026, in line with the global trend. This is underpinned by private consumption and investment amid weak exports due to the impact of the US tariffs on exports. 'We remain positive on private investment with ongoing initiatives like the New Industrial Master Plan 2030, National Energy Transition Roadmap, National Semiconductor Strategy and the 13th Malaysia Plan (2026-2030). 'There have been a lot of approved investments over the past two to three years and this should help support private investment activity, going forward,' he said. In 2024, Malaysia recorded RM379bil of approved investments, comprising RM170.4bil in foreign investments and RM208.1bil in domestic investments. In the first quarter of 2025, total approved investments stood at RM90bil, of which RM60.4bil were foreign and RM29.4bil were domestic investments. On whether he expects FDI to slow this year, Lee described the outlook as a 'cautious investment approach' with a 'wait-and-see' stance, amid near-term policy and trade-related uncertainties. However, he believes Malaysia's third investment upcycle – characterised by high-quality investments which began in mid-2023 – remained intact and would not 'just fizzle out like that'. 'I am hopeful that it will be much more stable by 2H26,' Lee said. In the meantime, he stressed that it was important for Malaysia to enhance its tax competitiveness and ease of doing business to remain relevant as an investment destination amid current trade uncertainties. In this regard, Lee calls for measures like cutting the corporate tax rate from 24% to 22% and increasing the threshold for small and medium enterprises enjoying a preferential tax rate of 15% for the first RM2mil chargeable income. SERC projects Malaysia's gross domestic product growth to slow to 4% in both 2025 and 2026. It expects inflation to remain in the range of 1.5% to 1.8% for the year, and between 2% to 2.5% in 2026. According to Lee, the growth outlook overall remains tilted to the downside, stemming mainly from sluggish global trade, subdued investor confidence and disappointing commodity output. 'Persistent external uncertainties along with weak implementation of the various masterplans could weigh on domestic demand, especially investment,' he said. Meanwhile, Lee noted the ringgit's outlook remains positive, backed by strong economic fundamentals and economic resilience – diversified economic sectors and export markets, sustaining investment flows and services growth. 'Nevertheless, negative risks for the ringgit are global growth prospects, the US trade policy, the Federal Reserve's (Fed) interest rate path and the Chinese yuan. We expect the ringgit to end 2025 at RM4.20 against the US dollar,' he said. As for the outlook on global growth, Lee said a continued slowdown in 2H25 and 2026 is expected due to the impact of ongoing tariffs and policy uncertainty, as well as geopolitical risks. The US economy is expected to see a near-term slowdown as consumers' front-loading purchase wanes and consumer inflation ticks up. 'Nevertheless, monetary easing, tax cuts, deregulation and strong tech investments are expected to cushion a severe economic slowdown. Higher consumer inflation risk could limit the Fed's rate easing. 'We expect the Fed to pivot toward rate cuts in 2H25 and 2026 to support the economy, although the expected higher inflation may slow down the rate cut,' he said.
The Star
08-07-2025
- Business
- The Star
Malaysia faces new US risk from BRICS ties
PETALING JAYA: Malaysia may have to grapple with fresh uncertainties amid a decision by the United States to impose an additional 10% default tariff on any country seen as aligning with 'the anti-American policies of BRICS.' This development comes as the July 9 tariff deadline looms and follows the recent BRICS Summit in Brazil, which was also attended by Prime Minister Datuk Seri Anwar Ibrahim. However, earlier comments by Anwar last month indicated that tariffs talks between Malaysia and the United States had proceeded smoothly. This latest 10% tariff threat – aimed at countries perceived to be closely aligned with BRICS – contributed to weakness on Bursa Malaysia yesterday, with the FBM KLCI declining 12.65 points, or 0.82%, to 1,537.54 at the close, snapping nine consecutive days of gains. The broader market was negative, with 754 losers, 260 gainers and 446 counters unchanged. Socio-Economic Research Centre executive director Lee Heng Guie said the latest tariff threat by US President Donald Trump is a continuation of an evolving trade policy narrative. 'It looks like Malaysia has to live with this uncertainty for the time being. 'If so, the country will have to brace for a situation where, under the Trump administration and maybe even after that, US tariffs become the new norm and are here to stay,' Lee told StarBiz. Companies may need to reconfigure supply chains to adapt to this new reality, as Malaysia's geopolitical neutrality will likely be further tested in the days ahead, he added. BRICS refers to a forum for cooperation among a group of leading emerging economies. Last year, the group expanded beyond its original five members – Brazil, Russia, India, China and South Africa – to include Egypt, Ethiopia, Indonesia, Iran, Saudi Arabia and the United Arab Emirates. The bloc – aimed at elevating member nations' global influence and serving as a counterweight to the United States and Western Europe – now represents more than half of the world's population. CGS International Securities head economist Ahmad Nazmi Idrus said the proposed 10% tariff is a negative development for Malaysia. 'Currently, we expect Malaysia to get a 10% tariff (status quo) and if the tariff gets higher than this, it will be negative for the economy. 'That being said, there needs to be a definition on what 'alliance with BRICS' actually means. We are partners and not a full member, but so is Vietnam,' Ahmad Nazmi said. Sunway University's professor of economics Yeah Kim Leng noted that many countries have strong trade relationships with BRICS and are unlikely to be deterred by the 10% tariff threat, especially if the economic and trade benefits with the group outweigh the cost of a US market loss. Meanwhile, SPI Asset Management managing partner Stephen Innes said Malaysia is seen to eventually be impacted by Trump's proposed 10% BRICS-aligned countries in due course. 'With deep trade integration and strategic exposure to China, Malaysia could easily be swept into the penalty net – as a collateral casualty in Washington's increasingly binary view of global alliances. 'Exporters in key sectors like electronics and midstream manufacturing face heightened uncertainty, especially if US buyers start rerouting orders preemptively.' However, beyond trade, Innes said the bigger risk is reputational. 'Being lumped, even implicitly, into the BRICS orbit could chill foreign investor appetite just as Malaysia is trying to attract fresh capital. This is no longer about tariff math – it's about alignment optics. 'If neutrality starts looking like silent endorsement in Trump's framework, Malaysia may need to rethink how it positions itself in a world where sitting on the fence can still get you soaked,' he added.
Asia News Network
05-07-2025
- Business
- Asia News Network
Expanded SST: Malaysian consumers warned against dishonest traders
July 4, 2025 PETALING JAYA – The expanded Sales and Service tax (SST) may have a limited short-term effect on inflation, and to prevent dishonest traders from profiteering, economists say Malaysians play a crucial role in curbing unnecessary price hikes. They advise consumers to be vigilant when shopping and avoid buying products from dishonest traders. Economist Geoffrey Williams said consumers must be tough on companies that exploit the implementation of the expanded SST and raise prices unnecessarily. He said they can report such companies for profiteering to the authorities or even name the company on social media. 'Naming and shaming profiteers online is very effective, as well as boycotting the worst offenders. 'But, this requires group action where NGOs and consumer groups can play a role,' said Williams. He also said companies could play a role by being transparent with prices and having comparisons with their competitors. 'Those that treat customers well will keep and gain customers and those with bad attitudes will lose business,' said Williams. He added that consumers should be aware of which products are affected under the expanded SST when they go shopping. 'If they see prices rising on products that had the same tax rate, they can report it to the authorities for profiteering. 'The effect on inflation will be limited and temporary because this is a one-off effect on only a small sample of goods and services. Most of the consumer price index constituents are unaffected,' added Williams. He was commenting on the SST expansion which began on July 1 which saw zero rate taxes remaining for essential goods, while a rate of 5% to 10% was imposed on non-essential items. An 8% service tax will be imposed on rental or leasing services, with no tax imposed on residential housing, reading material, monetary leasing and tangible assets outside Malaysia. A 6% service tax will be levied on construction work services related to infrastructure, commercial and industrial buildings. Socio-Economic Research Centre executive director Lee Heng Guie said consumer activism played a crucial role in addressing unnecessary price hikes and Malaysians themselves should be vigilant and report any unjustified price hikes to the authorities. 'To manage price pressures, the government can improve price monitoring, providing clear communication to the public, and strict enforcement of tax compliance to prevent price gouging,' said Lee. He also said the government could implement awareness campaigns and maintain clear guidelines as well as strict enforcement of tax compliance to prevent excessive profiteering. The inflationary effects from the implementation of the expanded SST, he said, was not expected to have a lasting impact on the country. 'While price adjustments are anticipated, particularly on non-essential items and services estimated between 0.5 and 1 percentage points in the short-term, this will likely taper off over time,' added Lee. He said low- and middle-income earners were likely to be affected by the expanded SST implementation despite exemptions on essential items and cash handouts such as Sumbangan Tunai Rahmah by the government. 'The increase in SST on a broader range of goods and services can lead to price hikes across the supply chain, ultimately impacting consumers, especially those in the lower and middle income brackets. 'While direct consumer impact is limited, some businesses, particularly those relying on rented premises in sectors like logistics, manufacturing, and retail, may experience increased costs due to the service tax on leasing and rental services. 'This could potentially be passed on to consumers,' added Lee. Carmelo Ferlito, economist and chief executive at the Centre for Market Education think tank, argued that the prices of some goods may increase, but stressed that the government should not intervene. 'There are already too many price distortions in the Malaysian economic system,' he said. Inflation was a generalised and persistent increase in the level of price due to the quantity of money increasing, outpacing the growth of the economy's output of goods and services, he said. 'Taxes do not create inflation, government spending does. 'There will instead be inflation if the government expands the money supply to counter the effects of SST,' added Ferlito.
The Star
04-07-2025
- Business
- The Star
‘Don't let traders play the expanded SST card'
PETALING JAYA: The expanded Sales and Service tax (SST) may have a limited short-term effect on inflation, and to prevent dishonest traders from profiteering, economists say Malaysians play a crucial role in curbing unnecessary price hikes. They advise consumers to be vigilant when shopping and avoid buying products from dishonest traders. Economist Geoffrey Williams said consumers must be tough on companies that exploit the implementation of the expanded SST and raise prices unnecessarily. He said they can report such companies for profiteering to the authorities or even name the company on social media. 'Naming and shaming profiteers online is very effective, as well as boycotting the worst offenders. 'But, this requires group action where NGOs and consumer groups can play a role,' said Williams. He also said companies could play a role by being transparent with prices and having comparisons with their competitors. 'Those that treat customers well will keep and gain customers and those with bad attitudes will lose business,' said Williams. He added that consumers should be aware of which products are affected under the expanded SST when they go shopping. 'If they see prices rising on products that had the same tax rate, they can report it to the authorities for profiteering. 'The effect on inflation will be limited and temporary because this is a one-off effect on only a small sample of goods and services. Most of the consumer price index constituents are unaffected,' added Williams. He was commenting on the SST expansion which began on July 1 which saw zero rate taxes remaining for essential goods, while a rate of 5% to 10% was imposed on non-essential items. An 8% service tax will be imposed on rental or leasing services, with no tax imposed on residential housing, reading material, monetary leasing and tangible assets outside Malaysia. A 6% service tax will be levied on construction work services related to infrastructure, commercial and industrial buildings. Socio-Economic Research Centre executive director Lee Heng Guie said consumer activism played a crucial role in addressing unnecessary price hikes and Malaysians themselves should be vigilant and report any unjustified price hikes to the authorities. 'To manage price pressures, the government can improve price monitoring, providing clear communication to the public, and strict enforcement of tax compliance to prevent price gouging,' said Lee. He also said the government could implement awareness campaigns and maintain clear guidelines as well as strict enforcement of tax compliance to prevent excessive profiteering. The inflationary effects from the implementation of the expanded SST, he said, was not expected to have a lasting impact on the country. 'While price adjustments are anticipated, particularly on non-essential items and services estimated between 0.5 and 1 percentage points in the short-term, this will likely taper off over time,' added Lee. He said low- and middle-income earners were likely to be affected by the expanded SST implementation despite exemptions on essential items and cash handouts such as Sumbangan Tunai Rahmah by the government. 'The increase in SST on a broader range of goods and services can lead to price hikes across the supply chain, ultimately impacting consumers, especially those in the lower and middle income brackets. 'While direct consumer impact is limited, some businesses, particularly those relying on rented premises in sectors like logistics, manufacturing, and retail, may experience increased costs due to the service tax on leasing and rental services. 'This could potentially be passed on to consumers,' added Lee. Carmelo Ferlito, economist and chief executive at the Centre for Market Education think tank, argued that the prices of some goods may increase, but stressed that the government should not intervene. 'There are already too many price distortions in the Malaysian economic system,' he said. Inflation was a generalised and persistent increase in the level of price due to the quantity of money increasing, outpacing the growth of the economy's output of goods and services, he said. 'Taxes do not create inflation, government spending does. 'There will instead be inflation if the government expands the money supply to counter the effects of SST,' added Ferlito.
