Malaysia’s GDP slows in Q1, outlook hit by trade tensions

Malaysia’s economy grew 4.4 per cent in the first quarter of 2025 from a year earlier, slower than the previous quarter, with the central bank projecting a weaker outlook due to trade tensions affecting spending and investment.

Growth in the January to March period was in line with government estimates, but below the 4.5 per cent expansion forecast by economists surveyed by Reuters. The economy grew a revised 4.9 per cent in the final quarter of 2024.

The central bank said first quarter economic growth was driven by sustained household spending growth amid positive labour market conditions and policy support, as well as steady expansion in investments, and continued export growth.

“Growth was affected by lower oil and gas production, and normalisation in motor vehicle sales and production,” Bank Negara Malaysia Governor Abdul Rasheed Ghaffour said at a press conference.

On a quarter-on-quarter seasonally adjusted basis, first quarter GDP expanded 0.7 per cent vs a 0.2 per cent contraction in the previous quarter.

This year’s growth is expected to be slightly lower than the 4.5 per cent to 5.5 per cent forecast range, Abdul Rasheed said, adding a new estimate would be announced in the next month or two.

“The balance of risk to the growth outlook is currently tilted to the downside,” he said, adding slower growth in major trading partners due to trade restrictions would affect spending and investment activities in Malaysia.

Prime Minister Anwar Ibrahim said earlier this month that the suspension of most of the US tariffs until July meant the economic impact was manageable for now, but Malaysia was unlikely to meet its growth forecast this year.

Malaysia is facing a 24 per cent tariff rate on its exports to the US from July, unless it can negotiate a reduction.

Abdul Rasheed said first quarter growth was boosted by exports as companies front-loaded ahead of potential tariffs, with demand for Malaysian electrical and electronics products expected to be sustained.

Capital Economics said it expects Malaysia’s growth to ease to 4.8 per cent this year from 5.1 per cent in 2024.

“With growth set to struggle, we think pressure on the central bank to cut rates will increase,” senior Asia economist Gareth Leather said in a note, forecasting two 25 basis point cuts this year.

The central bank kept its benchmark interest rate unchanged at 3 per cent during its policy meeting last week, but other analysts also expect rate cuts later in the year.

In response to a weaker outlook, the bank also announced that banks’ statutory reserve requirement ratio will be lowered by 100 basis points to 1.00 per cent, effective May 16, to ensure sufficient liquidity.

Malaysia’s current account surplus expanded to 16.7 billion ringgit ($3.92 billion) in the first quarter from 12.9 billion ringgit in the final quarter of 2024, data showed on Friday.

Headline and core inflation averaged 1.5 per cent and 1.9 per cent in the first quarter of 2025, respectively.

Abdul Rasheed said headline inflation is expected to remain below 3 per cent this year, given further easing in global cost conditions and the absence of excessive demand, with new forecasts for inflation and GDP to be announced soon.

The central bank projects headline inflation between 2 per cent and 3.5 per cent in 2025, and core inflation at 1.5 per cent to 2.5 per cent after both measures came in at 1.8 per cent in 2024.

Abdul Rasheed said the ringgit’s value remains market determined, and the central bank will continue to encourage inflows to support the currency.

The official advance GDP estimates showed the economy slowing from growth of 5 per cent in the final quarter of 2024, with the statistics department saying domestic activity and demand had underpinned growth. Final first-quarter data is due on May 16.

“Malaysia’s GDP growth held firm amid persistent global headwinds, underpinned by resilient domestic fundamentals,” Chief Statistician Mohd Uzir Mahidin said.

He said strength in retail and wholesale trade, a good jobs market and improved demand for key exports had helped buffer the economy against global challenges.

Separate data showed a stronger-than-expected 6.8 per cent annual rise in exports in March, with shipments to the United States rising by 50.8 per cent to a record 22.66 billion ringgit ($5.14 billion).

In early April, US President Donald Trump announced a global round of import tariffs, most of which have been delayed until July. Malaysia, which is facing a 24 per cent tariff rate, is sending a delegation next week to meet US officials for talks. The trade ministry said despite the global trade war the central bank had maintained its forecast for GDP growth this year at 4.5 per cent to 5.5 per cent, and said export growth was seen at 5.2 per cent.