PETALING JAYA: Escalating global tensions are exerting downward pressure on Malaysia’s external trade, which may in turn impact economic growth as seen by the subdued export performance for May.
The country’s exports last month slipped into a decline of 1.1% year-on-year (y-o-y) opposed to April’s rise of 16.4%.
The figure for May came in below the expectations of economists as weak regional demand overshadowed ongoing front-loading activity mainly from the United States, Taiwan, and South Korea.
Notably, Malaysia’s trade surplus narrowed sharply, plunging by 92.3% y-o-y and 85.1% month-on-month to just RM770mil as import growth outpaced exports.
The trade surplus reading was the lowest since the Covid-19 pandemic period.
In a report, TA Research said the substantial contraction in net exports poses downside risks to the performance of gross domestic product (GDP) in the second quarter (2Q25) and if the trend persists it could lead to a further drag on net exports, potentially offsetting gains from resilient domestic demand.
“While net exports accounted for only 4.9% of GDP in 1Q25, compared with 98.2% from domestic demand, the current volatility in global trade sentiment may have broader implications for overall growth.
“Against this backdrop, we maintain our GDP growth forecast for 2Q25 at a moderate 4% versus 1Q25’s 4.4%,” TA Research said.
However, at this juncture, the research firm maintained its forecast for export growth at 2.2% and import growth at 2.6% for this year, with the trade surplus projected at RM134.04bil.
Malaysia and the United States have intensified efforts to finalise a tariff agreement before the current 90-day tariff pause expires on July 8, a move both sides indicated is nearing completion.
With indications of a constructive US-Malaysia dialogue, CIMB Research has revised its GDP growth forecast for this year upward to 4.3% from 4% previously.
Although this marks a step up, the research house said it remains below the government’s target of 4.5% to 5.5%, reflecting its “more measured view on external demand recovery and domestic momentum”.
CIMB Research also reckoned benign inflation would allow Bank Negara room to cut the overnight policy rate to 2.75% in 3Q25.
“Even with near-term support from export front-loading, Malaysia’s growth outlook remains clouded by persistent global trade uncertainty and an uneven domestic recovery.
“Imports of capital goods surged but sustainability of this momentum beyond the 90-day US tariff pause remains uncertain.
“Domestically, private consumption moderated to 5% in 1Q25 versus 5.3% in 4Q24 despite fiscal support such as cash transfers and subsidies, while early signs of weakening emerged in the output of financial services, technology, and automotive sales,” the research house said.
