Kuala Lumpur: Malaysia remains well-positioned to navigate challenges, backed by strong economic fundamentals, robust domestic demand, resilient household spending, and increased investments. MIDF Amanah Investment Bank Bhd highlighted that domestic growth fundamentals remain robust, driven by increasing spending from both consumers and businesses, which will continue to support economic expansion this year.

According to BERNAMA News Agency, besides increased government expenditure, investment activities will be fueled by the initiation and progress of various infrastructure projects. MIDF Amanah remains cautious of Malaysia’s trade outlook amid heightened uncertainties surrounding global trade. Malaysia’s trade environment could become more challenging, especially if the US imposes higher tariffs on semiconductors and other manufactured goods. Consequently, MIDF Amanah expects Malaysia’s gross domestic product (GDP) to grow at a more stable rate of 4.6 percent in 2025, easing from the strong growth of 5.1 percent last year.

MIDF Amanah anticipates continued growth in domestic spending, driven by a robust labor market, manageable inflation, accommodative monetary policy, and recovery in tourism activities. Government support measures, including cash assistance, will further stimulate spending. Additionally, access to flexible retirement fund accounts, higher civil servant salaries, and an increased minimum wage reinforce consumption growth this year. The upcoming Hari Raya Aidilfitri festivities are expected to further boost retail activity in the coming quarter.

Major economic sectors are poised for continued expansion this year, with the services sector driven by rising household spending and increased tourist arrivals and spending. Despite policy adjustments like higher diesel prices and increased utility tariffs, overall price pressures remain manageable, minimizing the impact on consumer purchasing power. The delayed RON95 fuel subsidy rationalization until mid-2025 continues to support growing household expenditures. MIDF Amanah noted the construction sector’s robust growth, benefiting from ongoing infrastructure projects, including the Pan Borneo Highway, East Coast Rail Link (ECRL), Miri airport expansion, and Penang Light Rail Transit (LRT). Optimism remains about the expansion of data centers, supporting capital goods imports and generating demand for the construction and utility sectors.

However, rising external uncertainties could challenge Malaysia’s trade and export-driven sectors. Stricter US trade policies, including reciprocal tariffs and semiconductor duties, may dampen demand, particularly as electric and electronic (E and E) products accounted for 60.3 percent of Malaysia’s exports to the US in 2024. Retaliatory measures by other countries have escalated geopolitical and trade tensions, reshaping global trade alliances and contributing to a more fragmented trade environment, which may weaken global trade activity. While the cooler inflation reading in February 2025 raises hopes for the US Federal Reserve to cut rates by mid-year, the relief may be short-lived. The full impact of US President Donald Trump’s tariff hikes, along with broader policies such as tax cuts, deregulation, and stricter immigration rules, could further fuel inflation, eroding consumer sentiment and purchasing power.