PETALING JAYA: United States president-elect Donald Trump’s trade policy, which is set to take off next year, will impact Malaysia’s economy, either directly or indirectly, but the saving grace will be the nation’s robust domestic demand which will cushion the impact.
Despite the trade policy of imposing import tariffs on some countries, including Malaysia, economists remain bullish on the country’s economy and are projecting it to grow at a relatively encouraging growth of 4% to 5% next year.
Based on official estimates, the economy is projected to grow between 4.5% and 5.5% in 2025, driven by strong domestic demand and strategic investments in critical sectors including technology, manufacturing and renewable energy.
RAM Rating Services Bhd economist Nadia Mazlan told StarBiz said Trump’s plans to slap sweeping and broad import tariffs, if implemented, could soften Malaysia’s economic growth, primarily through slower export activity.
Given Malaysia’s status as a small, open economy and the United States being a key export destination, Malaysia may experience both direct and indirect effects on its exports.
Export of goods and services contributed an average of 62% of the country’s overall real gross domestic product (GDP) over the past five years, highlighting the economy’s reliance on trade.
That said, she added that from a national accounting perspective, the net contribution to GDP is partly offset by imports.
RAM Rating Services Bhd economist Nadia Mazlan
“The direct impact of the tariffs would stem from a reduction in US demand for Malaysian exports as US importers face steeper prices. The United States accounted for 11.3% of Malaysia’s total exports in 2023, underscoring the potential magnitude of a direct decline in US demand.
“In addition, the United States’ continued trade protectionism over semiconductor goods raises the possibility that some of Malaysia’s exports to other countries may be subject to targeted measures such as the recent addition of semiconductor manufacturing equipment under the foreign direct product rule.
“The foreign direct product rule allows the United States to regulate foreign-made products if they contain certain US-sourced technology, software or equipment.
“This could be a risk to export activity as 40% of Malaysia’s exports are shipments of electrical and electronics (E&E), out of which 13% of E&E exports is destined to China,” she noted.
Nadia said the indirect effects could arise from broader disruptions to global trade. Malaysia’s export activity may see weaker demand from other countries if Trump’s proposed tariffs result in slower global trade or lower demand for a product that Malaysia contributes to in the supply chain.
See said higher US tariffs on China, for example, could slow China’s growth which would mean decreased consumption and production. This could dampen the Chinese demand for imported intermediate goods and final goods from Malaysia, she said.
“Malaysia’s overall GDP is at risk in the event of a significant decline in US and Chinese consumption, as final demand from these countries account for 5.4% and 7.8% of our total value-added production, respectively,” Nadia said, adding that the rating agency is maintaining its GDP growth forecast range of 4% to 5% for 2025, a slight moderation from the 5.1% it penned for 2024.
Domestic demand is expected to remain the anchor of Malaysia’s economic growth next year, Nadia said.
OCBC senior Asean economist Lavanya Venkateswaran said the US imposition of tariffs could shave off up to 0.9 percentage points (pp) off the bank’s baseline under scenario 2 and as much as 1.5pp under scenario 3 for Malaysia.
Under scenario 1, the bank assumes a 60% tariff is imposed on China’s exports to the United States. Under scenarios 2 and 3, tariffs are imposed on all trading partners including Asean along with 60% tariffs on China’s exports to the US.
Under scenario 2, OCBC assumes a tariff of 10% is imposed on all US trading partners including the Asean countries along with a tariff of 60% on China’s exports to the US. Under scenario 3, a 20% tariff is imposed on US trading partners, along with a tariff of 60% on China’s exports to the US.
OCBC Asean senior economist Lavanya Venkateswaran.
“We expect Malaysia’s growth to only be modestly impacted by 0.2pp under scenario 1. Higher tariffs on China alone will impact Malaysia via slower demand from China but there is a clear offset in terms of rising investments and further acceleration of ‘China +1’ policies,” she said.
‘China +1’ refers to the business strategy to avoid investing only in China and diversify business into other countries.
Venkateswaran said she is maintaining 2025 GDP growth at 4.5% versus 5.2% in 2024.
“Our forecast suggests that the economy will grow broadly in line with potential growth. Growth momentum will be supported by still resilient electrical and electronics exports, resilient household spending and a strong pipeline of public infrastructure projects.
“We do expect domestic demand growth to remain resilient. Specifically, we expect investment spending and household consumption to be the main drivers next year.
“Investment spending will likely be supported by a strong pipeline of public infrastructure projects, while household spending will be buoyed by strong wage growth and low unemployment rates.
“Export growth is likely to remain relatively resilient, albeit slowing from 2024, supported by the electronics and electrical machinery sector,” she noted.
Economist and Williams Business Consultancy Sdn Bhd founder Geoffrey Williams, however, felt the election of Donald Trump as United States president is positive for Malaysia and signals a more stable global environment with the prospect of growth and extra trade worldwide.
He said the local economy is mostly back to normal with strong growth, low inflation, stable interest rates and low unemployment.
Economist and Williams Business Consultancy Sdn Bhd founder Geoffrey Williams
“So the government can focus on structural reforms to raise incomes and investment as well as subsidy rationalisation to help fiscal policy and debt and deficit management.
“Malaysia’s targeted economic growth of 4.5% to 5.5% for next year is normal growth and should be achieved without any policy intervention and with stable interest rates. Any change in policy is unnecessary and any extra stimulus risks inflation which is destabilising.
“Domestic demand as the anchor of Malaysia’s economic growth will be important, but hopefully there will be more push from net trade which had been contracting since August last year.
“The Unity government is stable and will continue to be. This is important for long-term structural reforms, especially in subsidy rationalisation and raising incomes,” Williams noted.
Bank Muamalat Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid said any decline in foreign demand from Trump’s imposition of tariffs would have a direct impact on the Malaysian economy in terms of exports. Currently, he said total exports on the whole accounts for about two-third of the Malaysian economy.
He said domestic demand would be the key driver for Malaysia’s economic growth, and projects GDP growth for 2025 at 5%. He said domestic demand would be driven by full employment along with expansionary fiscal policies and supportive monetary stance.
Bank Muamalat Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid
“As for exports, I am looking a positive growth of around 4.5% for 2025 as global chip sales growth of 11.2% albeit slower than 19% growth estimated for 2024, and this will be the driver for our exports in 2025 along with commodities exports such as liquified natural gas (LNG), palm oil and crude oil.
On the external front, Afzanizam said geopolitical risks could also impact the country’s economy. Conflicts in the Middle East and eastern Europe are the main key risk factors to global demand as it could disrupt supply chains and lead volatile financial markets and weak business sentiment, he said.
OCBC’s Venkateswaran said apart from trade protectionism, geopolitical tensions and slower progress on the domestic reform agenda are some potential risks in 2025 for Malaysia’s economy.
