KUALA LUMPUR: Malaysia's economic growth is expected to moderate to 4.9 per cent in 2025, slightly above the official target range of 4.5 per cent to 5.5 per cent, taking into account the impact of domestic policies and external challenges, said KSI Strategic Institute for Asia Pacific (KSI).
The independent think tank noted that the global economy faces uncertainty under US President Donald Trump's second term.
KSI explained that Malaysia benefited from Trump's previous protectionist policies, but as an open economy, the new tariff threats could affect the local economy, both directly and indirectly.
"Nevertheless, domestic demand will remain the primary driver of growth. Private consumption will be supported by a stable labour market, a 7 to 15 per cent increase in civil service pay, revisions to the minimum wage, and the withdrawal of flexible Employees' Provident Fund (EPF) Account 3 funds.
"Private investment will benefit from the spillover effects of ongoing approved investments and a favourable financing environment," it said in its 'Economic Report, End of Year 2024'.
For 2024, KSI forecasts GDP growth of 5.2 per cent.
Public investment is expected to moderate in 2025, given the flat development budget allocation compared to 2024.
Ongoing infrastructure projects and the launch of the GEAR-UP programme, amounting to RM25 billion in 2025, along with government-linked investment companies (GLICs) and government-linked companies (GLCs) committing RM120 billion in domestic direct investment (DDI) over the next five years, should support government investment activities.
Public consumption is expected to grow faster, reflecting increased operating expenditure from Budget 2025, it added.
Regarding the labour market, the unemployment rate is projected to reach 3.2 per cent by the end of 2025, supported by job creation driven by healthy domestic demand and ongoing investments.
The gig economy, accounting for 18.5 per cent of the workforce or 3.1 million people as of October 2024, is expected to continue its growth, fuelled by advancements in digitalisation and shifting workforce preferences.
On the monetary front, Bank Negara Malaysia (BNM) is expected to keep the Overnight Policy Rate (OPR) unchanged at 3.00 per cent throughout 2025.
Unlike its global counterparts, BNM has limited room to cut its policy rate due to domestic price pressures, such as the minimum wage increase, the rationalisation of the RON95 fuel subsidy, and the expansion of the Sales and Services Tax (SST).
With a stable outlook for the OPR in 2025, mortgage rates are expected to remain steady, keeping the property market positive.
The residential property market showed strong performance in the first half of 2024, with the total number and value of residential property transactions increasing by 6.1 per cent and 10.4 per cent year-on-year, respectively.
Notably, the number of overhang units improved, decreasing to 21,968 as of September 2024, down from 25,816 at the end of 2023.
Meanwhile, KSI projected that the FBM KLCI would fluctuate between 1,650 and 1,750 points, supported by steady domestic economic recovery, stable oil prices, growth in the technology and financial sectors, positive government policies, strong corporate earnings, an appreciating ringgit, and rising foreign direct investment (FDI) and foreign portfolio inflows.
"Virtuous investment cycles will be the key theme in 2025,” it said.
Key drivers for the market and stock performance in 2025 are expected to include positive consumption spending, acceleration in infrastructure spending, structural reforms aimed at fiscal sustainability, state government economic initiatives, re-industrialisation, and AI-driven growth.
The market is also likely to be boosted by mergers and acquisitions in the banking and technology sectors, as well as IPOs in the healthcare, telecommunications, and consumer sectors.
The ringgit is expected to appreciate if global oil prices remain high and Malaysia benefits from increased foreign investment and robust trade demand.
"The ringgit could strengthen to around RM3.90 to RM4.00 against the US dollar,” it said.
However, the think tank cautioned that global financial stress, capital outflows, or rising global interest rates could weaken the ringgit, with potential downside risks towards RM4.30 or more against the US dollar.
-- BERNAMA
TAGS: KSI Strategic Institute for Asia Pacific, Malaysian economy, outlook, investments, markets, KSI Economic Report End of Year 2024
