KUALA LUMPUR: RHB Investment Bank Bhd (RHB IB) has revised Malaysia’s gross domestic product (GDP) forecast for 2025 downwards to 4.5 per cent from an earlier projection of 5.0 per cent, following rising trade tensions and recent tariff hikes that pose a threat to the nation’s export-driven economy.
The revision comes in response to the blanket tariff measures from the United States (US), which include a 24 per cent levy on Malaysian goods.
In a research note today, RHB IB said this development, previously thought unlikely due to the relatively small US trade deficit with Malaysia, has now increased downside risks significantly.
It said the balance of risks now leans towards a 4.0 per cent growth should tariff and trade tensions escalate further.
"Our revision takes into account the impact of recent reciprocal tariffs on Malaysia, which results in a downside to GDP of 0.4 per cent, compounded by higher US tariffs on China, which results in another 0.7 per cent downside to Malaysia’s GDP (assuming no easing policies from China).
"We anticipate heightened headwinds for the economy, particularly within the trade and manufacturing sectors, beginning in the second quarter (2Q) of 2025, as the negative repercussions of these tensions become more pronounced,” it added.
Regarding the forthcoming 1Q 2025 GDP advance release, the investment bank said Malaysia’s economic growth is expected to range between 4.8 per cent year-on-year (y-o-y) and 5.0 per cent y-o-y, supported by the resilient economic momentum observed thus far.
RHB IB noted that while Malaysia’s direct trade with the US only comprises about 10 per cent of total trade volume and 11.6 per cent of total exports, the effects are compounded by indirect pressures via global supply chains and demand slowdown in key economies such as China and the US.
"In 2024, Malaysia recorded a goods surplus with the US amounting to RM72.38 billion. Based on a conservative price elasticity of demand of -0.5, the new US tariff could reduce Malaysian exports to the US by about 12 per cent, translating to an RM8.7 billion shortfall,” it said.
To cushion the blow, RHB IB said it expects Bank Negara Malaysia to consider a 25 basis point cut in the overnight policy rate in the second half of 2025, particularly if growth dips below the official target range of 4.5 to 5.5 per cent.
"The central bank’s monetary policy stance will hinge on three factors: the strength of economic momentum, inflation trajectory, and, to a lesser extent, global interest rate trends,” it said.
The investment bank said to mitigate the impact of these tariffs, Malaysia would consider diversifying its export markets by prioritising high-growth regions and leveraging existing free trade agreements (FTAs), including the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the Regional Comprehensive Economic Partnership (RCEP).
"In addition, Malaysia will also foster new partnerships within ASEAN and enhance Malaysia’s supply chain resilience by accelerating the implementation of key industrial policies like the New Industrial Master Plan 2030 (NIMP 2030) and the National Energy Transition Roadmap (NETR),” it said. - Bernama
