KUALA LUMPUR (Aug 15): Malaysia’s economic growth in the second half of 2025 is expected to moderate as weak exports, particularly to the US and China, weigh on overall performance, economists said, adding however that resilient domestic demand and steady investment momentum should help cushion the slowdown.

RHB Research said sectors highly reliant on US and China demand — including electrical and electronics (E&E), raw materials and machinery — are likely to bear the brunt of both direct US tariffs on Malaysia and spillovers from the US-China trade dispute.

“In particular, recent US tariff threats on semiconductors could affect Malaysia’s US$12.4 billion (3% of nominal GDP) in semiconductor exports to the US. Nevertheless, Malaysia’s strong integration into US supply chains, anchored by major players such as Intel and Texas Instruments, may allow for exemptions, partially mitigating the potential impact,” the research house noted.

ANZ Research echoed the cautious outlook, warning that Malaysia’s export outlook will remain challenging in the coming quarters, especially with US tariffs taking effect from August and Washington’s efforts to curb the re-routing of Chinese exports through third economies.

Malaysia’s economy saw a sharp deterioration in net exports in the second quarter of 2025 (2Q2025), though it was supported by strong investment activity and robust household spending, official data on Friday showed.

Second quarter GDP grew at 4.4% year-on-year — slightly below the advance estimate and unchanged from the first quarter.

The US has slapped a 19% import tariff on Malaysian goods as part of sweeping reciprocal tariffs against its major trading partners. President Donald Trump earlier this month threatened a 100% tariff on imported semiconductors, which makes up about one-third of Malaysia’s exports to the US.

Overall, economists are of the view that growth should remain supported by domestic resilience, particularly sustained investment momentum. “Encouragingly, investment as a share of GDP has been on a rising trend since its trough in 2022. Although the four-quarter average remains low at 22%, investment is emerging as the most stable anchor of growth,” ANZ said.

Domestic spending, the country’s main engine of growth, should be further supported by the RM2 billion Merdeka cash handout, which RHB estimates will add about 0.2 percentage point to 2025 GDP. Household consumption will also be supported by a strong labour market, higher minimum wages and adjustments to civil service pay, the research house added.

RHB maintains its 2025 GDP growth forecast at 4.2%, with potential upside to 4.4%, while ANZ has kept its projection at 4.1%. In comparison, Bank Negara Malaysia (BNM) expects GDP growth in the range of 4%–4.8%, down from its earlier forecast of 4.5%–5.5%.

On monetary policy, ANZ said it does not expect further interest rate cuts this year after BNM lowered the overnight policy rate by 25 basis points in July as a pre-emptive move to safeguard growth. RHB expects the policy rate to remain at 2.75% for the rest of the year, assuming growth stays within the official range and inflation remains contained.

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