Malaysia trims 2025 growth forecast as trade tensions mount, following GDP revisions by Thailand and Indonesia  

[KUALA LUMPUR] With global policy shifts and intensifying trade tensions clouding the outlook, Malaysia has trimmed its 2025 gross domestic product forecast, becoming the third major South-east Asian economy after Thailand and Indonesia to revise growth expectations for this year.

Bank Negara Malaysia on Monday (Jul 28) announced a lower economic growth forecast range of between 4 and 4.8 per cent for 2025, down from its earlier estimate of 4.5 to 5.5 per cent announced in March.

The downgrade reflects rising uncertainty over global tariffs, shifting trade alliances and geopolitical instability – factors increasingly weighing on the outlook for export-reliant economies in the region.

Despite the downward revision, Bank Negara governor Abdul Rasheed Ghaffour said the country’s economy remains on a “strong footing” buoyed by structural reforms, resilient domestic demand and manageable inflation.

“This is, in part, the outcome of structural reforms that we have undertaken over the years. The sustained strength in economic activity and moderate inflation provides a supportive environment to pursue structural reforms for a more resilient and competitive Malaysia in the future,” he said in a statement.

He cautioned, however, that as a small and open economy, Malaysia is not immune to the evolving risks.

“The global growth outlook is affected by shifting trade policies, tariff uncertainties and geopolitical tensions,” he added.

Advance estimates for the second-quarter GDP indicate continued resilience, underpinned by robust labour market conditions, strong private consumption and the realisation of multi-year projects.

The Department of Statistics Malaysia earlier projected the country’s economy to expand by 4.5 per cent in the second quarter, with Bank Negara scheduled to release the official figures on Aug 15.

The central bank also provided a fresh outlook on inflation, projecting headline inflation to average between 1.5 per cent and 2.3 per cent in 2025, amid a more subdued demand and cost environment.

Inflationary pressures from global commodity prices are expected to remain contained, and the impact of domestic policy measures on prices is likely to be limited, said Abdul Rasheed.

While acknowledging downside risks, including a prolonged period of elevated tariffs and escalating geopolitical tensions, the governor noted that upside scenarios could materialise if global conditions improve.

These include more favourable trade outcomes, pro-growth policies in major economies, stronger demand for Malaysia’s electrical and electronic exports, and sustained tourism recovery.

“Uncertainty remains on both the downside and upside, but Malaysia remains well-positioned to navigate these challenges with a resilient domestic base and reform momentum,” said Abdul Rasheed.

Regional downgrades

Malaysia’s downward revision follows similar moves by its neighbours. Thailand adjusted its 2025 growth forecasts multiple times, initially lowering it in April from 2.9 per cent to a range of 1.3 per cent to 2 per cent, before revising it upwards to 2.3 per cent in June amid stronger-than-expected performance.

Still, in July, the Bank of Thailand warned that growth could moderate to 1.6 per cent in the second half of the year due to the impact of new US tariffs.

Bank Indonesia cut growth projections in May to a range of 4.6 per cent to 5.4 per cent, from the earlier 4.7 per cent to 5.5 per cent, following a weaker-than-expected performance in the first quarter.

The trio of GDP revisions reflects the deepening challenges faced by regional economies, as they contend with supply chain realignments, tariff volatility and diverging monetary policies globally.

Trade pressures mount

The economic recalibrations come amid ongoing negotiations between South-east Asian countries and the United States over punitive tariff rates.

As at Jul 8, Malaysia was hit with a 25 per cent tariff, while Thailand faced an even higher 36 per cent tariff. New tariff rates are expected to be announced by Washington by Aug 1.

Indonesia, meanwhile, secured a more favourable deal with Washington in May, agreeing to lift tariffs on over 99 per cent of US products and remove all non-tariff barriers for American companies, in exchange for a reduced 19 per cent tariff on its own exports.

Analysts said the pressure from tariffs and global uncertainties is already feeding into revised growth assumptions by research houses.

Asean+3 Macroeconomic Research Office cut its 2025 GDP growth forecast for Malaysia from 4.7 per cent to 4.2 per cent, citing weaker global trade prospects.

CGS International economists Mas Aida Che Mansor and Nazmi Idrus also flagged downside risks tied to Malaysia’s ongoing subsidy rationalisation and the expansion of the sales and services tax, which could dampen consumption.

Still, they maintained a 4.2 per cent growth forecast, expecting domestic demand to offset external headwinds.

Similarly, RHB Research lowered its full-year GDP projection to 4.2 per cent, from 4.5 per cent previously, citing increased external risks.

“While there are signs of resilience and pockets of strength, markets and policymakers are navigating a challenging environment shaped by a trio of interlinked forces – tariffs, geopolitical tensions and the possibility of a tighter monetary policy,” said Alexander Chia, head of regional equity research at RHB Research.

Chia noted that while higher US tariffs on Malaysian and Chinese exports may weigh on overall growth, the domestic economy remains anchored by steady consumer spending and ongoing investment.