Tariffs cast a challenging path ahead for Malaysia’s GDP growth

Published on 29 Aug 2025.

Share Tweet Email

RAM Ratings maintains its projection for Malaysia’s GDP growth at 3.5%-4.5% in 2025 (2024: 5.1%). Despite significant global trade uncertainties, the Malaysian economy still held up relatively well, maintaining growth at 4.4% in 2Q 2025 (1Q 2025: 4.4%). This nonetheless marks a moderation from the 5.1% growth seen in 2024. Growth in 2Q 2025 was anchored by a stable performance in the services sector and robust double-digit expansion in the construction sector. This helped offset the slower expansion in manufacturing and a further contraction in mining activity. On the demand side, firm consumption and investment activities in both the private and public sectors helped cushion the sharp contraction in net exports (-72.6%; 1Q 2025: 19.6%). The trade surplus squeeze stemmed from a concurrent deceleration in export activity (2.6%; 1Q 2025: 4.1%) and a jump in import growth (6.6%; 1Q 2025: 3.1%). 

That said, we anticipate a more challenging growth path in the coming quarters. Despite a greater clarity on trade policies following the recently concluded US trade deal, the US reciprocal tariff rate on Malaysian exports will rise to 19% effective August from the baseline 10% rate imposed earlier in April. This downward pressure on external demand comes on top of fading support from earlier global frontloading activities, which had temporarily boosted demand. 

Even so, domestic fundamentals remain strong. Healthy labour market conditions and continued expansion in investment activities will remain supportive of growth. Additionally, we project average headline inflation to still be relatively modest at 1.5%-2.5% in 2025, riding on the benign inflation in 1H 2025 (1.4%), which should provide a conducive backdrop for sustained spending. 

The near-term risk to outlook remains skewed to the downside. An escalation of trade tensions – particularly if the US extends a blanket import tariff to electrical and electronic (E&E) goods, Malaysia’s key export segment – would significantly weaken Malaysia’s overall trade performance.

Looking ahead to 2026, we have pencilled in a growth forecast of 4.0%-5.0%. Growth is likely to remain below the pre-pandemic trend (2011–2019 average: 5.1%) as the external segment will continue to face headwinds from US trade restrictions and supply chain disruptions. However, we anticipate the intensity of these pressures on trade flows to turn more moderate in 2H 2026 as global businesses gradually re-adjust supply chain strategies and adapt to the new trade environment. Coupled with the continued resilience in domestic drivers, these factors should help keep the current slowdown relatively shallow.

Read the full Quarterly Economic Update report here.

 

Analytical contact Tan Wan Ying (603) 2708 8251 wanying@ram.com.my		Media contact Sakinah Arifin (603) 2708 8212 sakinah@ram.com.my
Woon Khai Jhek, CFA (603) 2708 8286 khaijhek@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. 

Disclaimer

ALL INFORMATION IS PROVIDED “AS IS” WITHOUT WARRANTY OF ANY KIND. Although every reasonable care has been taken to ensure the accuracy, completeness and objectivity of the information contained in this Media Release, RAM Ratings makes no representation or warranty, whether express or implied, as to its accuracy, completeness and objectivity and accept no responsibility or liability relating to any losses or damages howsoever suffered by any person arising from any reliance on the views expressed or information in this Media Release. RAM Ratings assumes no obligation to update any information or statement contained herein, save for any information required to be disclosed by law.

Published by RAM Rating Services Berhad
© Copyright 2025 by RAM Rating Services Berhad
All rights reserved. This material may not be published, reproduced, broadcast, rewritten or redistributed without prior permission.