Malaysia’s Economy Grows in Q1, But Trade Risks Cloud Outlook

Malaysia began 2025 on a steady economic footing, with first-quarter growth in line with expectations. However, the optimism is tempered by growing concerns over global trade tensions—particularly escalating U.S. tariffs on Southeast Asia—that could slow the country’s export-driven economy in the months ahead. Here's a quick breakdown of the key developments shaping Malaysia's economic outlook.

Malaysia’s economy grows, but global trade tensions threaten 2025 outlook.

Solid Start to 2025

Malaysia’s economy expanded by 4.4% in Q1 2025, matching official projections but slightly below economists’ expectations. This marked a slowdown from 5% in Q4 2024, though domestic demand—through consumer spending and investment—remained robust.

Trade Tensions Threaten Outlook

Bank Negara Malaysia (BNM) has flagged significant downside risks from new U.S. tariffs affecting regional exports. Malaysia currently faces a 24% tariff, with only a temporary 90-day suspension in place, set to expire on July 8. Sectors like semiconductors and pharmaceuticals are especially exposed.

Growth Forecasts Under Review

In light of these uncertainties, BNM is reassessing its 2025 GDP forecast, previously set at 4.5–5.5%. The IMF has already cut its projection to 4.1%, while Moody’s warned that higher government spending could complicate efforts to reduce the fiscal deficit.

Policy Tools Ready

To support growth, BNM reduced the statutory reserve requirement (SRR) by 100 basis points, enabling banks to increase lending. While the interest rate remains unchanged at 3%, the central bank signaled it has policy space to act if the outlook worsens.

Inflation and Currency Remain Stable

Headline inflation eased to 1.5%, while core inflation rose slightly to 1.9%, mainly due to rental price increases. The ringgit appreciated by 0.8% against the U.S. dollar in Q1, supported by a weaker greenback and easing expectations for U.S. economic growth.

Outlook: Cautious Optimism

With continued uncertainty over global trade policy, analysts expect a “wait-and-see” stance from businesses and households. While domestic fundamentals remain strong, Malaysia’s near-term growth will depend heavily on how global trade tensions evolve.