Malaysia's Economic Growth Braces for Tariff Headwinds in 2025

Malaysia’s economy entered 2025 with a mix of resilience and vulnerability. While early estimates suggest GDP growth of 4.8–5.2% year-on-year for the first quarter, recent U.S. tariff policies have cast a shadow over what was once a bright outlook. The Socio-Economic Research Centre (SERC) now projects a revised GDP growth rate of just 4% for 2025, down from an initial 5%, as trade tensions and export disruptions loom large.

The GDP Outlook: A Delicate Balance

Malaysia’s economic trajectory hinges on its export-driven sectors, particularly the electrical and electronics (E&E) industry, which accounts for 54.6% of total exports to the U.S. (

). The U.S. tariffs—ranging from 10–20% on Malaysian goods and 60% on Chinese products—are expected to dampen demand for these exports. E&E exports to the U.S. are now projected to grow only 3% in 2025, a sharp drop from 8.5% in 2024. This slowdown could ripple through Malaysia’s broader economy, which relies heavily on trade.

Tariffs as a Double-Edged Sword

The U.S. tariffs threaten not only Malaysia’s export competitiveness but also its domestic demand. SERC warns that reduced income from exports could curb private consumption growth to just 4.4% in 2025, down from 5.1% in 2024. Meanwhile, inflationary pressures are mounting. Fuel subsidies are set to be phased out in mid-2025, and mandatory pension contributions for non-citizen workers will take effect in the fourth quarter. Combined with potential electricity tariff hikes, these measures could push inflation to 2.5–3%, complicating household budgets.

Policymakers Walk a Tightrope

Bank Negara Malaysia remains cautiously optimistic, projecting GDP growth of 4.5–5.5%, but it is acutely aware of the risks. The central bank is focusing on stabilizing the ringgit, which is expected to hold within 4.5–4.6 against the U.S. dollar, by encouraging repatriation of investment income and deficit reduction. However, the ringgit’s fate also depends on global markets and the resolution of U.S. trade disputes.

Domestic Drivers Offer a Silver Lining

Amid the gloom, Malaysia’s domestic reforms and tech investments provide hope. The RM1,700 minimum wage and Oracle’s USD6.5 billion cloud project in Cyberjaya underscore efforts to diversify the economy. Additionally, Malaysia’s trade surplus is projected to climb to RM13.4 billion in March /2025, though export growth has slowed to 1.5% year-on-year.

Markets React with Caution

Equity markets have already reflected these uncertainties. The FBMKLCI index posted 0.4% quarterly losses in Q4 2024, though it outperformed peers like the Philippines’ PCOMP. Gains in healthcare and tech sectors were offset by declines in telecom and energy stocks. Meanwhile, bond yields have risen, with Malaysian government securities increasing by 10–15 basis points as global inflation fears mount.

Conclusion: Navigating the Tariff Crossroads

Malaysia’s economy is at a crossroads. While domestic reforms and a resilient trade surplus offer support, the U.S. tariff regime poses a clear threat to export-driven growth. The 4% GDP forecast by SERC underscores the fragility of the current trajectory. Investors should closely monitor two key factors:
1. Trade Negotiations: A resolution to U.S. trade disputes within the 90-day “pause” period could avert further slowdowns.
2. Domestic Policy: The success of reforms like the minimum wage and tech investments will determine whether Malaysia can pivot toward a more balanced growth model.

For now, the data paints a cautious picture. With E&E exports under pressure and inflation on the rise, Malaysia’s economy is navigating a narrow path between resilience and retrenchment. Investors would be wise to stay agile, prioritizing sectors insulated from trade shocks—such as healthcare and technology—while keeping a close eye on geopolitical developments. The ringgit’s stability and Malaysia’s trade dynamics will remain key indicators of whether this Southeast Asian economy can weather the storm.