Bank Muamalat Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid
PETALING JAYA: The mounting global risks will not significantly derail Malaysia’s economic growth going forward, economists believe.
Although Malaysia, as an open economy, may to an extent be impacted, the country’s economic fundamentals remain intact, spurred by the government’s ongoing economic reforms, they noted.
Strong domestic consumption, rising investment potential and a healthy labour market are additional plus points that would cushion the local economy from such risks.
According to Control Risks, a global specialist risk consultancy, the top risks for businesses in 2025 included uncertainty in the United States, the global trade war, redline geopolitics, rising political violence and digital concentration.
Bank Muamalat Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid told StarBiz Malaysia, being an open economy in respect to trade, investment and capital flows, would feel some impact.
He said the possible implementation of universal tariff in the United States could raise import prices, leading to higher domestic prices as businesses pass on these additional costs to consumers.
This could also result in lower demand, as price increases typically lead to lower consumption.
What this means, said Mohd Afzanizam, is that if the tariff hike is so prevalent, it could undermine demand from US consumers and businesses, potentially affecting Malaysia’s exports.
“While it is a valid concern, the past data showed that the export to the United States during Trump 1.0 from 2017 to 2020 was quite commendable.
“Malaysia’s export growth rose 10.5%, 2.4%, 6.3% and 13% in 2017, 2018, 2019 and 2020, respectively.
“This occurred at a time when the Trump 1.0 administration had been introducing a series of tariffs against China in particular and followed by retaliation from the affected countries.
“On that note, there is a lot of permutation about Trump 2.0. But we have yet to see the reality,” he said.
“In a grand scheme of things, the domestic engine, especially investment, has been vibrant and the government remains committed to enact economic reforms, which will improve the government’s credibility, translating into confidence among investors and businesses.
“The Johor-Singapore Special Economic Zone, Sarawak economic reforms and other state economic developments would propel the risk appetite among investors and businesses,” he noted.
Despite the global risks and headwinds, Mohd Afzanizam has maintained his economic growth projection of 5% for the year, premised on rising investment and consumption, as well as stability in the labour market.
Meanwhile, OCBC senior Asean economist Lavanya Venkateswaran said the US economic policies on trade and tariffs, as well as taxes and immigration, under incoming President Donald Trump would be key drivers of economic growth and inflation for the United States and, consequently, the rest of the world.
“Geopolitical tensions, as we have seen with the recent intensification of US sanctions on Russian oil exports, remains a risk for the global economic outlook in 2025,” she said.
For Malaysia, she said the local economy entered 2025 on a strong footing, with growth firing on all engines.
“We expect this will remain the case for this year, particularly with household consumption and investment spending supported by proactive government policies,” she noted.
That said, Malaysia remains an open economy and tariffs would have a negative impact on growth.
To estimate the impact of tariffs, OCBC Bank has outlined three potential scenarios.
Under scenario 1, it assumes a 60% tariff will be imposed on China’s exports to the United States.
Under scenario 2, the bank assumes a 10% tariff will be imposed on all US trading partners, including Asean countries, along with the 60% tariff on China.
Under scenario 3, a 20% tariff will be imposed on US trading partners, along with the 60% tariff on China.
“While we have argued that Malaysia has a well-diversified export base in terms of trading partners and products, tariffs could shave off up to 0.9 percentage point (pp) off our baseline under scenario 2 and as much as 1.5 pp under scenario 3.
“We expect Malaysia’s growth to only be modestly impacted by 0.2 pp under scenario 1.
“Higher tariffs on China alone will impact Malaysia via slower demand from China, but there is a clear offset in terms of rising investments and further acceleration of ‘China+1’ policies,” Venkateswaran said.
China+1 refers to a strategy where companies avoid investing only in China and diversify their businesses to alternative destinations.
Venkateswaran has projected 2025 GDP growth of 4.5% versus 5.2% in 2024, noting that the bank’s baseline forecast has not accounted for changes to trade policies, but includes expectations of modestly slower household spending in the second half, following the RON95 subsidy rationalisation.
Centre for Market Education chief executive officer Carmelo Ferlito said besides geopolitics, particularly the US-China trade war, the main thing to be observed is whether Trump’s statements are mainly a tactic to force foreign counterparts into negotiating with the United States or if they represent a real shift in policy.
He said China has embarked on a bold plan to artificially stimulate aggregate demand, recognising that there are fundamental issues with the way its economy is structured.
This new plan is likely to introduce excess liquidity, driving households and firms further into debt, paving the way for an economic crisis.
“US policy, however, is greatly overestimated and the China risk is greatly underestimated, at the very least,” Ferlito noted.
The Finance Ministry expects Malaysia’s economy to maintain steady growth above 5% in 2025, supported by strategic investment, robust fiscal management and economic resilience.
Finance Minister II Datuk Seri Amir Hamzah Azizan stated that despite the choppiness in the global market, the country is resilient enough to remain above 5% growth.