MALAYSIA remains well-equipped to navigate economic challenges in 2025, buoyed by its strong economic fundamentals, resilient domestic demand, and increased investment, according to MIDF Amanah Investment Bank Bhd.
The firm notes that the nation's growth prospects remain robust, driven by a rise in spending from both consumers and businesses, which will continue to bolster the economy this year. Furthermore, the government's increased expenditure, alongside the initiation of various infrastructure projects, is expected to fuel continued investment activity.
However, MIDF Amanah expressed caution regarding Malaysia's trade outlook, particularly given the uncertainties surrounding global trade dynamics.
"Malaysia’s trade environment could become more challenging in the months ahead, especially if the United States imposes higher tariffs on semiconductors and other manufactured goods," the bank said.
As a result, the firm has revised its expectations for Malaysia's economic growth, forecasting a more stable 4.6 per cent expansion in 2025, following the strong 5.1 per cent growth recorded in 2024.
Domestic Spending to Remain Resilient
MIDF Amanah anticipates that domestic spending will continue to grow this year, supported by a strong labour market, manageable inflation, accommodative monetary policies, and the recovery of the tourism sector. The government's fiscal support measures, including direct cash assistance, are expected to further boost consumption.
Additionally, initiatives such as greater flexibility with retirement fund accounts, higher civil servant salaries, and an increased minimum wage will also contribute to the expansion of consumer spending. The firm expects the upcoming Hari Raya Aidilfitri celebrations to spur retail activity in the coming months.
Broad-Based Growth Across Sectors
The bank believes that major economic sectors in Malaysia are positioned for continued expansion in 2025. The services sector, in particular, will benefit from rising household spending and a boost in tourist arrivals and spending. Despite policy changes such as higher diesel prices and increased utility tariffs, price pressures are expected to remain manageable, minimising the impact on consumer purchasing power.
The delayed rationalisation of the RON95 fuel subsidy until mid-2025 will continue to support household spending, MIDF Amanah added. The construction sector is also poised for strong growth, with ongoing infrastructure projects such as the Pan Borneo Highway, East Coast Rail Link (ECRL), Miri airport expansion, and the Penang Light Rail Transit (LRT) contributing to economic activity. Furthermore, the growth of data centres is expected to drive demand for capital goods and benefit the construction and utilities sectors.
Risks to Growth Outlook
Despite the optimistic outlook for domestic spending and sectoral growth, MIDF Amanah highlighted potential risks to Malaysia’s economic performance, particularly from external factors. "Rising global uncertainties could pose challenges for Malaysia’s trade and export-driven sectors," it said.
The firm pointed out that stricter US trade policies, including reciprocal tariffs and duties on semiconductors, may reduce demand for Malaysia’s exports, especially given that electrical and electronic products accounted for 60.3 per cent of Malaysia’s exports to the US in 2024. Additionally, retaliatory measures from other countries have heightened geopolitical tensions, reshaping global trade alliances and potentially weakening global trade activity.
"While the cooling inflation readings in February 2025 offer hope for a rate cut by the US Federal Reserve by mid-year, the relief may be short-lived," the bank noted. It warned that the full impact of former US President Donald Trump’s tariff hikes, coupled with broader policies such as tax cuts, deregulation, and stricter immigration rules, could push inflation higher, eroding consumer sentiment and purchasing power. – March 26, 2025
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