KUALA LUMPUR: Malaysia is at a higher risk of being slapped with new tariffs for exports into the United States should Donald Trump win in the November presidential poll.
Lee Heng Guie, executive director of the Socio-Economic Research Centre (SERC), said Trump’s tariff may target countries with significant trade surplus with the United States. This includes Malaysia, which recorded a trade surplus of RM42bil against the United States in the first eight months of 2024.
It is noteworthy that the US government has kept Malaysia on its currency manipulation watch list for having a significant bilateral trade surplus with the country. The other countries on the watch list are Singapore, Vietnam, China, Taiwan, Germany and Japan.
Trump had previously announced that he plans to impose a 10% to 20% tariff on imports from countries that are, according to him, “ripping off” American consumers.
“For now, there is no clarity yet on how the tariff will be imposed on importers,” said Lee in SERC’s quarterly economic tracker media briefing.
On another note, Lee said the benefits from Malaysia’s strong economic and private investment performance have yet to be fully enjoyed across the population.
“The benefits for businesses are, in fact, very concentrated. The trickle-down effect (to the rakyat) is still quite slow. That’s a fact. It takes some time for people to feel the impact of the country’s growth,” he said.
That said, domestic demand continues to anchor Malaysia’s growth, reinforced by healthy exports.
Exports, which expanded by 6% year-on-year (y-o-y) in the first eight months of 2024, are estimated to grow full-year at 6%, according to SERC. Earlier, the think tank had predicted a 4% growth in 2024.
With a strong investment upcycle starting to take off, this will further support domestic economic activities.
“With a plethora of investments streaming in from multinationals like Google, Microsoft, ByteDance and Tesla, Malaysia will experience a global tech upcycle, especially where digital infrastructure like artificial intelligence, cloud computing, data centres and electric vehicles are concerned.
“We strongly believe that private investment remains firmly on an upturn, estimated at between 10% and 13.5% in 2024-2026, underpinned by the ongoing implementation of multi-year infrastructure projects and the realisation of some approved investments in 2021-2023 and in 2024.”
Lee said Malaysia’s gross domestic product (GDP) growth had likely peaked in the second quarter of 2024, with a growth of 5.9% y-o-y.
Nevertheless, he expects the GDP to grow by an average of 5.7% y-o-y in the second half of 2024 (2H24), as compared to 5.1% in 1H24. In view of the economic momentum, SERC has revised its 2024 full-year GDP growth estimate to 5.4% from 4.5% previously.
“For 2025, we forecast real GDP growth to sustain at a healthy clip of 5%, reflecting a continued pace of domestic demand, higher private investment and better exports.
“We expect the government to raise its 2024 GDP growth estimate to between 5% and 5.5% from 4% and 5% currently and introduce 5% to 6% for 2025 when tabling Budget 2025 on Oct 18,” he said.
Commenting on the upcoming budget, Lee said it will be a blend of sustaining economic growth with fiscal stability, investment orientation and supporting long-term sustainable development.
“We expect Budget 2025 to lay out measures and initiatives in areas of tackling cost of living and business costs pressures, supporting green economy, wage-enhancement and skills development, fostering investment through reducing bureaucracy and strategic investment funds and strategic budgetary allocations for key sectors.”
The key sectors are affordable public housing, public transport and infrastructure, ports, roads, healthcare, education and training and digital infrastructure.
SERC also expects the government to aim for a lower fiscal deficit to GDP ratio of 3.8% for 2025 from the estimated 4.3% in 2024 on better federal revenue outturn and continued restraint in operating expenditure.
The think-tank outlined several proposals for Budget 2025, one of which is targeted tax relief and rebate measures for taxpayers and households to cope with immediate financial pressures.
This includes an increase in personal tax relief to RM12,000 from the current RM9,000 as the last revision was done in 2010; reintroduction of the parental care tax relief; extension of the tax rebate of RM400 to individuals with chargeable income not exceeding RM70,000; and a personal tax relief of up to RM4,000 annually on house rental payments.
“To address the old-age and retirees’ financial protection challenge, it is proposed that higher income relief of up to RM8,000 for an increase in the Employees Provident Fund voluntary contribution rates for those aged 55 to 60; and tax incentives for employers to offset employees’ monthly wages to employers who voluntarily re-employ workers after the retirement age 60.”
On managing healthcare costs and medical insurance, SERC proposed the introduction of hospital fee benchmarks for 21 common surgical procedures and eight common medical conditions.
This is intended to have transparent medical bills.
It also recommended capping the level of prices by setting maximum amounts that hospitals and physicians could receive from commercial insurers.
SERC also called for “radical consideration” to reintroduce the goods and services tax at a lower rate of 4%, as compared to 6% pre-2018.
To further push fiscal reforms, Lee said the government must continue to plug leakages in public spending.
“Tabling of the Government Procurement Act must be expedited without further delay,” he said.
SERC also highlighted the need to help businesses to manage costs, especially the micro, small and medium enterprises as they constitute 96.9% of the Malaysian businesses.
“Increase the threshold to RM500,000 from RM150,000 currently for small and medium enterprises (SMEs) enjoying preferential tax of 15%.
“Qualifying SMEs and mid-tier companies should be given a corporate income tax rebate of 25%, capped at RM20,000.
“For those qualified SMEs that are not making a profit at a certain threshold, a cash payout of RM5,000 should be disbursed to support these businesses,” suggested Lee.
