Economists opined that the government would likely need to provide additional fiscal and monetary support to bolster growth.
PETALING JAYA: While Malaysia’s gross domestic product (GDP) growth is expected to slow as it approaches the second half of 2025, it is supported by targeted fiscal policies, prudent fiscal management and economic diversification efforts, say experts.
Economist Geoffrey Williams said although the growth forecasts are slower, the economy is still growing and government revenues as well as spending are sound.
“The economic growth downgrade is a consequence of the US tariffs and assumes reciprocal tariffs will be introduced in full.
“The slower growth puts pressure on fiscal consolidation and debt reduction but the government targets are still achievable,” he told StarBiz.
The International Monetary Fund (IMF) has downgraded its real GDP growth forecast for Malaysia to 4.1% this year, from its January estimate of 4.7%. The IMF also forecast the country’s real GDP to expand by 3.8% in 2026.
On global growth, the IMF cut its projections for 2025 to 2.8%, down 0.5 percentage points from the January forecast.
The downward GDP revision was in line with a broader reduction in regional projections, reflecting weaker growth prospects amid heightened uncertainty caused by the rapid escalation of trade tensions
Economists opined that the government would likely need to provide additional fiscal and monetary support to bolster growth, although such measures could be implemented in a targeted manner, lending some support to the economy.
“In light of the heightened uncertainties, we cannot rule out the possibility that fiscal authority would embark on a more expansionary fiscal stance.
“I suppose the government will remain vigilant on the downside risks to growth and would stand ready to respond accordingly. Perhaps, more financial assistance will be directed to the exporters who are affected by the US tariff,” said Bank Muamalat Malaysia Bhd head of economics, market analysis and social finance Mohd Afzanizam Abdul Rashid.
Last week, Prime Minister Datuk Seri Anwar Ibrahim said the government, together with the central bank and the Treasury Department, would review the IMF’s assessment of Malaysia’s real GDP and provide feedback during the special parliamentary sitting on May 5.
Meanwhile, Bank Negara has indicated that it may need to mark down its growth forecast of 4.5% to 5.5% for the year, although it stated it is “in no rush to revise the forecast” and would monitor the global trade situation.
Afzanizam noted that with the possible revision on GDP growth targets for 2025, the government may accelerate its development spending in order to crystalise the multiplier effects.
“The disbursement of grants for capacity building such as automation and mechanisation would be accelerated.
“The intra-Asean trade linkages will be fortified via the existing free trade agreements (FTAs). Micro, small, and medium enterprises are encouraged to seek more information preferential treatment in the existing FTAs in order to penetrate the export markets effectively and cost efficiently,” he said.
UCSI University Malaysia finance associate professor and CME research fellow Liew Chee Yoong said the slower global growth projected by the IMF indicates weakening demand and heightened uncertainties.
“Malaysia, being a highly open economy, is vulnerable to these trends, especially given the slowdown in China which is its largest trading partner,” he said.
Despite the headwinds, the country is well-positioned to weather global uncertainties given its strong fundamentals.
“Accelerating economic transformation through investments in the digital economy, green energy, and export diversification can boost medium-term growth,” Liew said.
OCBC senior asean economist Lavanya Venkateswaran concurred that bolstering reforms through national economic plans for the industry and semiconductor sector, and diversifying trade and investment partners will help keep the economy in good stead over the medium-term.
In the meantime, the country’s financial system and fiscal position remained resilient in supporting the economy, with little risk of a credit downgrade by rating agencies.
Sunway University economics prof Yeah Kim Leng said Malaysia’s sovereign credit profile remained intact if not fortified by above expected growth performance and gradual fiscal consolidation since its recovery from the Covid-19 pandemic recession in 2020.
“Further bolstering its creditworthiness is the country’s strong and well-capitalised banking sector and a healthy financial system with relatively low foreign currency borrowings.
“Malaysia has already embarked on a gradual fiscal consolidation process where the budgets for the last two years have focused on enhancing revenue sources and rationalising subsidies while reducing leakages and improving spending efficiency,” he said.
