PETALING JAYA: The Malaysian economy is exposed to repercussions of a change in the United States trade policy under the Trump administration, especially from the imposition of tariffs.
CGS International (CGSI) Research however expects that to be offset by a healthy domestic economy, supported by Putrajaya’s policies on wages and the spillover from robust growth in investment.
The research house warned downside risks could emanate from possible demand weakness amid higher taxes and subsidy removals, as well as any negative implications from Trump’s tariff policy on the exports sector.
It expects Malaysia’s real gross domestic product (GDP) growth to slow to 4.6% year-on-year (y-o-y) in 2025 from 5.2% this year due to external headwinds.
“Encouraging labour market, wage reform measures as well as improvement in tourism related sectors should continue to anchor domestic demand. External demand could face hurdles following Trump’s tariff policy.
“However, a second wave of supply chain restructuring could boost GDP growth,” CGSI Research stated in its Asean focused economic report.
It forecast private consumption growth of 5.7% y-o-y in 2025, driven by labour reforms including several wage hikes as well as the larger cash assistance programme.
“We anticipate an increase in disposable income from the first tranche of civil servant salary hikes in December 2024 and higher minimum wage of RM1,700 (an increase of 13%) starting in February 2025 to boost consumption.
In addition, government measures such as the Progressive Wage programme, multi-tier foreign worker levy, pension contribution for foreign workers and higher allocation in training programmes will likely assist in spurring the labour market as well through upskilling and training,” CGSI Research stated.
The research outfit expects the country’s gross fixed capital formation to moderate from 11.7% in 2024 to 4.1% y-o-y in 2025, partly due to the high base effect from the robust foreign direct investment growth year-to-date.
The United States-Sino trade tensions spillover effect could see Malaysia attract companies interested in expanding outside China ahead of Trump’s upcoming trade policies (China + 1 strategy).
Investments could also be driven by government initiatives such as the construction of the Penang Light Rail Transit, which is set to begin in early 2025.
The RM120bil five-year GEAR-uP programme (which will see RM120bil channelled directly into the local economy through direct domestic investment) should boost corporate capital spending and infrastructure development.
The research house also expects further cuts in the United States Federal Fund rate in 2025 will help the ringgit, assuming interest differentials narrow.
The outlook for the local unit would also depend on factors like global economic conditions. CGSI Research forecasts the ringgit to strengthen to 4.25 against the greenback by end of 2025 from about 4.4 at present.“The US dollar could strengthen amid the flight to safety, given the high uncertainties. However, a narrowing rate differential favouring Malaysia could strengthen the ringgit,” it said.
Key downside risks to the forecast include a change in the appetite of government-linked investment companies on repatriation and conversion of foreign currency proceeds.
With the Trump presidency presenting risks to trade and investments. CGSI Research expects real exports to moderate by 4.6% y-o-y in 2025 (2024: 9.3%) driven by the growth in the electrical and electronics sector.
