PETALING JAYA: Economists are offering varying views as to whether external trade will grow in the second half of the year or 2H25 after the slight year-on-year (y-o-y)dip in May, with June’s numbers scheduled to be out tomorrow.
Nevertheless, they remain confident that the country can achieve a gross domestic product (GDP) growth rate of between 4% and 5% this year, although a continued slowdown is being forecast for 2026.
Late last month, the Statistics Department released May’s trade figures which showed that the export unit value index had nudged down 1.5% y-o-y to 148 points.
Likewise, the import unit value index had also registered a fall of 1.1% to 124.8 points in May, while the terms of trade also declined by 0.5% month-on-month to 118.6 points.
Professor of economics at Sunway University, Yeah Kim Leng, said that the ringgit’s appreciation against the US dollar was the main cause for the marginal dip in May exports in ringgit terms, and for the seemingly modest export growth averaging 5.7% a month over the same period.
With the ringgit having appreciated against the US dollar by an average increase of 7% a month in the first five months of the year, he said Malaysia’s y-o-y exports in dollar terms grew by 13.1% a month, while imports expanded by 14.6% during the same period.
“With (US President Donald) Trump’s tariffs delayed to Aug 1, Malaysia’s export and import growth in ringgit terms is expected to revert to positive territory while maintaining double-digit increases in the US dollar,” he told StarBiz.
Asia Pacific chief economist at credit insurer Coface, Bernard Aw, said that so far in 2025, the country’s external trade was driven by re-exports, which made up 20% of total exports, which is in contrast to last year where re-exports shrank and domestic exports picked up the slack.
Observing that re-exports rose 13.8% in January to May 2025 while domestic exports lagged with a much smaller 3.5% growth, he said this reflected the transshipment narrative as businesses try to stock up ahead of the US tariffs.
Expecting export front-loading demand to taper off in the coming months as uncertainty remains high and businesses finish their stock-building, Aw said this means export performance would weaken.
“Assuming Malaysia fails to reach a favourable deal before the end of July, the direct impact of US tariffs from a 10% baseline to 25% and indirect impact on its main trading partners will weigh on the country’s economic and export activity,” he said.
Frederic Neumann, chief Asia economist and co-head of Global Investment Research Asia at HSBC, concurred, saying shipments are likely to cool as higher tariffs made Malaysian and other Asian goods more expensive in the United States.
Even if tariffs did not climb as much as feared, he said there would still likely be a slowdown in trade as front-loading has swelled inventories, which in any event will need to be whittled down.
The projected brakes on trade notwithstanding, chief economist at Bank Muamalat Malaysia Bhd Mohd Afzanizam Abdul Rashid is predicting GDP to grow by 4.1% in 2025, noting that business and consumer sentiments are expected to be cautious due to numerous factors, local and foreign.
“The impact of US levies on the global economy as well as domestic policies such as the sales and service tax, electricity tariffs, the Employees Provident Fund contribution for foreign workers and the impending RON95 subsidy rationalisation will tilt the needle.
“Having said that, while sentiment remains cautious, the economy should be able to grow as the labour market is still in full employment status along with ongoing investment activities among the private firms,” he said.
Meanwhile, Neumann said that on average, Malaysia could still see a decent expansion of exports for the year, echoing Yeah’s view, although he added that the annual numbers masked a sequential slowdown, while demand in the United States is shifting from front-loading to inventory destocking.
He said this means that headwinds for trade could persist into 2026, especially if higher tariffs in the United States spark an economic slowdown there and across much of the world.
Neumann commented: “A positive is that lower oil prices should help cushion the impact of a global trade slowdown due to tariffs.
“Nevertheless, persistent policy uncertainty in the United States will likely mean that growth over the coming years will need to be driven more by domestic demand, especially consumption.”
Coface’s Aw sees the economy slowing to 4% in 2025, and 3.5% in 2026, anticipating household spending to hold up GDP growth this year.
However, he said the risks to his forecast remained on the downside, before adding that if the tariff war escalates or the Middle East conflict widens regionally, global growth is likely to fall below 2%, which will impact Malaysia.
