Malaysia maintains 2025 growth forecast at 4.5% to 5.5%, warns of rising risks amid protectionism
The external environment is highly fluid and unpredictable, Bank Negara governor says
[KUALA LUMPUR] Malaysia reaffirmed its 2025 growth forecast at 4.5 per cent to 5.5 per cent, despite mounting risks from a potential global trade war, escalating geopolitical tensions and rising protectionism, Bank Negara Malaysia said on Monday (Mar 24).
Bank Negara governor Abdul Rasheed Ghaffour said sustained domestic demand – driven by robust investment activity from multi-year projects – would be the key growth driver, while a strong labour market and income-boosting policies continue to support household spending.
However, he cautioned that heightened global uncertainties, particularly the resurgence of protectionist policies, could pose risks to the trade and broader economic outlook.
“As a small and open economy, Malaysia is not insulated from these global developments. Nevertheless, our diversified economic structure and policies accord us the resilience and agility to navigate these headwinds. We are confident that the economy will remain on a steady growth path,” he said after releasing Bank Negara’s 2024 annual report.
External risks and trade outlook
The central bank warned that downside risks to growth stemmed largely from external factors. Escalating geopolitical tensions and protectionist measures could disrupt global trade, impacting Malaysia’s exports. Domestically, disruptions in commodity production could also weigh on growth.
Domestic demand is expected to anchor growth, driven by steady private-sector spending, said Abdul Rasheed.
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Employment is forecast to expand further, bringing the unemployment rate down to 3.1 per cent – below its long-term average. Wage growth is also expected to accelerate, in line with higher labour utilisation and wage-related policy measures.
In 2024, Malaysia’s economy grew 5.1 per cent, outpacing the previous year’s 3.6 per cent expansion, in alignment with the government’s forecast range of 4.8 to 5.3 per cent.
Strong investment growth, alongside better export performance and steady household consumption, fuelled the recovery, he added.
Investment cycle and structural reforms
Abdul Rasheed attributed Malaysia’s economic strength to the advancement of its third investment upcycle.
Initiatives under macro blueprints, such as the New Industrial Master Plan and National Energy Transition Roadmap, boosted Malaysia’s investment appeal, attracting strong private and public investments, he added.
Global megatrends such as artificial intelligence, data storage, cloud computing and renewable energy have also provided tailwinds.
Meanwhile, the government’s fiscal consolidation efforts under the medium-term fiscal framework strengthened investor confidence.
“Malaysia surpassed its fiscal deficit target in 2024, reinforcing optimism about its economic management and positioning the country as a prime investment destination,” he added.
The country achieved a fiscal deficit of 4.1 per cent in 2024, exceeding its initial target of 4.3 per cent, and lower than the 5 per cent in 2023.
Inflation to remain manageable despite policy reforms
Bank Negara expects headline inflation to average between 2 and 3.5 per cent in 2025, while core inflation is projected at between 1.5 to 2.5 per cent.
In 2024, headline inflation eased to 1.8 per cent from 2.5 per cent the previous year, and core inflation moderated to 1.8 per cent from 3 per cent.
“Inflation is expected to trend higher, but will remain manageable amid easing global cost pressures and the absence of excessive demand pressures,” Abdul Rasheed said.
Commodity prices are expected to moderate further, lowering production costs for businesses. Domestically, stable private consumption growth and productivity-aligned wage gains will help keep inflation in check, according to the report.
While acknowledging the potential price increases from measures like fuel subsidy rationalisation as well as sales and service tax expansion, Bank Negara believes the inflationary impact will be short-lived, and that these reforms are crucial for Malaysia’s progress towards high-income status.
“These reforms will pay off over the long term. They are intended to remove deep distortions in the economy and free up fiscal resources for more productive spending,” said the central bank in its report.
Trade and monetary policy outlook
Malaysia’s trade performance in 2025 is expected to benefit from the global technology upcycle and strong semiconductor demand, said Bank Negara, with non-electrical and electronic exports supported by external demand and regional investments.
While the planned maintenance of oil and gas facilities may impact commodity exports, growth in intermediate and capital goods imports signals sustained manufacturing and investment activity, according to the report. Tourism recovery is also expected to bolster services exports.
Bank Negara has maintained the overnight policy rate at 3 per cent since a 25-basis-point hike in May 2023. Economists anticipate the central bank will keep rates steady through 2025 to support economic expansion.
“Monetary policy will remain focused on maintaining price stability, while ensuring a conducive environment for sustainable growth,” Abdul Rasheed said.
Ringgit outlook
The ringgit experienced heightened volatility throughout 2024, driven by global developments, but ended the year stronger as investor confidence in Malaysia improved. It appreciated 2.7 per cent against the US dollar and 7.5 per cent against a broader basket of major trading partners.
Year to date, the ringgit has risen nearly 1 per cent to RM4.43 per US dollar, marking a 6 per cent gain from RM4.73 a year ago.
The ringgit’s performance will be shaped by capital flows, said the central bank. While narrower interest rate differentials are expected to support the currency, prolonged high US interest rates and global risk aversion may weigh on sentiment.
Despite short-term volatility, Malaysia’s strong economic prospects, structural reforms and investment inflows should provide long-term support for the ringgit, said Abdul Rasheed.
Bank Negara’s annual report stated that the central bank’s financial position remained stable in 2024, with total assets amounting to RM621.5 billion (S$187.5 billion) as at Dec 31, 2024.
The central bank booked a net profit of nearly RM13.2 billion in 2024, from RM7.2 billion a year earlier, of which RM7.9 billion was transferred into its risk reserve. It declared a dividend of close to RM5.3 billion to the government for the financial year 2024.
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