Nations’s economic growth likely to slow to 4.3% amid tariff pressures, weaker IPP

MALAYSIA’S economy is expected to grow at a moderate pace of 4.3 per cent year-on-year in 2025, weighed down by mounting tariff pressures and a slowdown in industrial production, according to CIMB Investment Bank Bhd.

In a recent research note, CIMB projected that subdued external demand and the dampening effect of higher US tariffs on Malaysian exports could soften growth in the second quarter (Q2 2025).

“Our baseline forecast assumes the current 10 per cent tariff on Malaysian exports to the United States will remain in place until the end of 2025,” the investment bank stated.

However, CIMB flagged a key risk: US tariffs are set to rise to 25 per cent on 1 August, subject to the outcome of ongoing trade negotiations between the two countries.

“If the 25 per cent rate is implemented, we expect a temporary export surge as exporters rush to beat the tariff deadline,” it said.

The bank anticipates that trade activity will likely decelerate after August, creating a weaker external environment that could weigh on Malaysia’s overall growth trajectory.

In such a scenario, Malaysia’s gross domestic product (GDP) growth could fall below the 4.3 per cent baseline forecast, particularly if the export slump spills over into domestic investment and business sentiment.

On 9 July, Bank Negara Malaysia (BNM) lowered its overnight policy rate (OPR) to 2.75 per cent in response to prolonged trade uncertainty and deteriorating economic prospects. The central bank said any further adjustments would be “data-dependent”.

CIMB also noted a slowdown in industrial activity, with combined growth in the Industrial Production Index (IPI) for April–May 2025 easing to 1.5 per cent year-on-year, down from 2.3 per cent in Q1. This suggests weakening momentum in manufacturing and mining sectors.

Nevertheless, the bank expects an uplift in manufacturing exports to continue into early Q3 2025, driven by the deferred US tariff deadline. - July 14, 2025

“This may help cushion the decline in mining output,” the bank said.

The Department of Statistics Malaysia is set to release May’s distributive trade index on 14 July, which will offer clearer insights into second quarter economic activity. Preliminary GDP estimates for Q2 2025 are scheduled to be published on 18 July. - July 14, 2025