Malaysia’s growth to remain steady in 2025 but global uncertainties loom large

Published on 02 Dec 2024.

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RAM Ratings maintains its projection for Malaysia’s GDP growth in 2025 at 4.0%-5.0% (2024F: 5.1%), as it enters a steadier growth trajectory following years of volatility. The robust performance in the first three quarters of 2024 underscores this momentum, with overall GDP growth averaging 5.2% during the period. Malaysia’s latest 3Q 2024 GDP print showed the economy continued to expand at a healthy 5.3%, propelled by stronger export momentum and accelerated public and private investment activities. This outpaced 2023’s full-year growth of 3.6% and the long-term average growth (2011-2019) of 5.1%. The solid economic momentum sets a favourable landscape for continued growth in 4Q 2024 and through to 2025. 

Malaysia’s economic performance in 2025 will remain anchored by favourable labour market conditions, continued demand for electrical and electronics (E&E) exports and faster implementation of investment projects. Private consumption, one of the key growth pillars, will also be uplifted by the upcoming minimum wage hike to RM1,700 a month (previously RM1,500 a month) effective February 2025. The latest wage data as of June 2024 showed that around 20% of formally employed Malaysian citizens, equivalent to about 8% of total workers in the labour market, earn below the new minimum wage. We estimate that the expected boost to private consumption from the higher pay could potentially add 0.2 percentage points to overall GDP growth in 2025. Additional support will come from the civil servant salary increases effective December 2024 and continued cash handouts next year. 

However, spending momentum may be stifled by the upcoming RON95 blanket subsidy removal in 2H 2025 and expansion of services tax. Nonetheless, we expect these pressures to be mitigated by the targeted government subsidy and financial assistance for households and businesses.

Globally, heightened geopolitical conflicts and economic slowdown across major economies pose risks for Malaysia’s growth. Of particular concern is President-elect Trump’s commitment to revamp US trade policy through sweeping import tariffs, which will directly pressure countries heavily reliant on US demand. Canada and Mexico are among the most exposed to higher US import tariffs, with approximately 15% of their total value-added produced dependent on US final demand and nearly 80% of their gross merchandise exports headed to the US. Malaysia’s exposure, though smaller, remains notable, with about 5% of Malaysia’s total value added destined to meet US final demand. Estimates indicate that a 1% decline in US final demand could directly reduce Malaysia’s GDP by circa 0.05%, excluding potential indirect or cascading effects from broader global trade disruptions. As Malaysia navigates these challenges, diversification of trade partnerships and a balanced approach to domestic policy implementation will be critical in sustaining its growth trajectory.
 

 

Read the full Quarterly Economic Update report here.

 

Analytical contact
Tan Wan Ying
(603) 3385 2540
wanying@ram.com.my    

Nur Nadia Mazlan
(603) 3385 2513
nadia@ram.com.my

Woon Khai Jhek, CFA
(603) 3385 2512
khaijhek@ram.com.my

Media contact
Sakinah Arifin
(603) 3385 2500
sakinah@ram.com.my

 

About RAM Rating Services Berhad (RAM Ratings)

Established in 1990, RAM Ratings is a leading credit rating agency registered under the Securities Commission’s Guidelines on Credit Rating Agencies. In addition to the provision of credit ratings for corporate bonds and sukuk and their issuers, RAM Ratings also provides research and publications on Islamic finance, fixed income and macro-economic and industry analysis as well as data analytics relating to credit risk, counterparty assessments and other related domains. 

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