PETALING JAYA: The reintroduction of protectionist trade policies under US President Donald Trump has heightened external risks for Malaysia, analysts say.
The latest move, a series of reciprocal tariffs announced on April 2, will see Malaysian exports to the United States subjected to a 24% duty.
In a report, Kenanga Research said these developments could heighten trade tensions and disrupt global supply chains, posing downside risks to external-oriented economies like Malaysia if tensions escalate.
Affin Hwang Investment Bank Research also flagged the softening manufacturing momentum, as reflected in the latest Manufacturing Purchasing Managers’ Index (PMI).
Malaysia’s PMI declined to 48.8 in March from 49.7 in February, remaining in contraction territory for the 10th consecutive month.
Affin Hwang pointed out that manufacturers reported declining new orders at the sharpest rate in a year, weighed down by subdued domestic and international demand.
“Manufacturers also reduced their employment through non-replacement of voluntary leavers, as the company chooses not to hire new employees to fill the positions,” it observed.
Kenanga Research noted that Malaysia’s manufacturing sector contributed 23.2% to gross domestic product (GDP) in 2024, valued at RM381.9bil, with a significant portion coming from export-oriented industries such as electrical and electronics, petroleum, chemical, rubber and plastic products.
“The sector benefited from trade and investment diversion during the Trump 1.0 period with growth averaging 4.9% (2017-2019), but experienced a sharp decline in 2020, contracting by 2.7% due to the impact of the Covid-19 pandemic.
“Risks are rising (now) amid growing uncertainty surrounding Trump’s latest trade policies,” Kenanga Research said.
Affin Hwang further noted that sluggish demand has impacted production, with firms scaling back output and reducing inventory levels.
“As a result, the purchasing activity, input buying and inventories of finished goods was reduced significantly during the month,” it said.
Supply chain disruptions also persisted, with firms experiencing longer delivery times for the 11th consecutive month.
Despite these challenges, there are some positives. Kenanga Research maintained its 2025 GDP growth forecast at 4.8%, supported by domestic-oriented sectors such as services, construction and manufacturing.
“Malaysia’s diversified export products and investor-friendly trade and investment policies and efforts to increase regional trade, as well as ongoing tech upcycle and rising demand for artificial intelligence-related products, may provide some cushion,” it stated.
Meanwhile, the regional outlook presents a mixed picture.
The Asean manufacturing PMI fell to 50.8 in March from 51.5 in February, with economies such as Indonesia (52.4) and Vietnam (50.5) still in expansionary mode.
However, the Philippines (49.4) and Thailand (49.9) slipped into contraction.
Meanwhile, the United States manufacturing sector showed signs of weakness, with its PMI falling to 50.2 in March, as business confidence weakened due to policy uncertainty.
Analysts remain cautious about the near-term prospects for Malaysia’s manufacturing sector.
“Business confidence weakened further as the level of optimism reached its lowest point in just over one-and-a-half years,” Affin Hwang noted, adding that manufacturers are pinning their hopes on a broader economic recovery, albeit with concerns about its timing.
