Malaysia's External Trade Slips into Decline Amid Global Tensions

Malaysia's external trade has been impacted by escalating global tensions, leading to a 1.1% YoY decline in exports in May. The trade surplus narrowed sharply by 92.3% YoY, and economists are concerned about the impact on economic growth. The government's GDP growth target of 4.5% to 5.5% may not be met, and CIMB Research has revised its forecast downward to 4.3%.

Malaysia's external trade has been significantly impacted by escalating global tensions, leading to a notable decline in exports. According to government data, exports fell by 1.1% year-over-year (YoY) in May, a sharp contrast to the expected 7.5% growth [1]. This decline was primarily driven by a reduction in shipments of petroleum products, chemicals, and iron and steel goods.

The trade surplus, which had been a significant indicator of Malaysia's economic health, narrowed sharply in May. The surplus stood at MYR 0.8 billion ($188.15 million), a 92.3% decrease from the previous year's MYR 10.0 billion. This was well below market expectations of MYR 6.4 billion, marking the smallest trade surplus since April 2020 [2].

The economic outlook for Malaysia has been further clouded by concerns over the impact of these trade developments on economic growth. The government's GDP growth target of 4.5% to 5.5% may not be achieved, as indicated by CIMB Research's revised forecast. The research firm has lowered its 2025 GDP growth prediction to 4.3%, citing easing trade tensions and constructive United States-Malaysia dialogue as reasons for the upward revision [3]. However, the forecast still falls short of the government's target, reflecting a more cautious view on the recovery in external demand and domestic momentum.

Kenanga Investment Bank, another financial institution, maintains its 2025 GDP growth forecast at 4.3%, attributing the resilience to domestic demand and the services sector. However, the bank also noted persistent weakness in the commodity-related sector, which continues to weigh on growth momentum [3].

Despite the underwhelming May export data, Kenanga IB expects a short-lived dip, with a likely rebound in June. The bank also anticipates continued support from the global tech upcycle, driven by artificial intelligence-related demand and new product launches, as well as Malaysia's export diversification efforts.

References:
[1] https://www.tradingview.com/news/reuters.com,2025:newsml_P8N3KH0BW:0-malaysia-s-may-exports-unexpectedly-fall-1-1-on-year/
[2] https://www.tradingview.com/news/te_news:464313:0-malaysia-trade-surplus-smallest-in-over-5-years/
[3] https://www.thestar.com.my/business/business-news/2025/06/23/cimb-revises-2025-gdp-forecast-to-43on-trade-easing-stronger-us-ties