KUALA LUMPUR (May 16): While Bank Negara Malaysia (BNM) has not cut the gross domestic product (GDP) growth forecasts, most economists see the domestic economic expansion slowing down to the 4% level.

At a press conference earlier on Friday, governor Datuk Seri Abdul Rasheed Ghaffour indicated that there could be a revision to the country’s gross domestic product forecast of 4.5–5.5%, pending greater clarity on the global trade landscape.

ANZ Research, UOB Global Economics & Markets Research and MIDF Research are projecting the economic growth to ease to around 4% to 4.1%, as the US reciprocal tariffs have clouded the outlook, leading to heightened global trade tensions and slower export demand.

GDP growth moderated to 4.4% in 1Q2025, marking three consecutive quarters of slowdown since 2Q2024 when 5.9% growth was recorded. In 2024, the country recorded a 5.1% GDP expansion.

RHB Research appears to be more optimistic, maintaining the GDP growth forecast at 4.5% for 2025, as it anticipated domestic demand to cushion the potential blows from external challenges. It said domestic demand is supported by robust consumer spending and steady investment.

ANZ Research pointed to the early signs of the softening of external demand, noting that new export orders Purchasing Managers’ Index (PMI) has remained below the 50-point threshold after falling into contractionary territory in December 2024.

"Nominal goods exports have held up so far, supported mainly by front-loaded demand from the US, which indicated an imminent slowdown in exports over the coming months and the fall in intermediate goods imports confirms it.

“Moreover, the uncertain outcome of the ongoing trade negotiations is also expected to impede the realisation of the strong investment approvals recorded in 2024,” it added.

The research outfit also cautioned that private consumption may wane in the coming quarters as rising uncertainty and falling consumer confidence will weigh on consumption demand.

UOB said the declining imports of intermediate and capital goods serves as a precursor to slower investments and trade for Malaysia, while noting that the economic growth outlook has clearly tilted lower, weighed down by a higher base effect over the next three quarters.

The research house’s base case remains that there is no outright recession, with GDP growth projected at 4% in 2025. Supporting streams could come from a potential extension of the 90-day reciprocal tariff at 10% beyond July, with front-loading activity, trade diversion and slower imports providing some buffer for net trade.

Readiness to ease monetary policy

Another positive factor is the central bank’s readiness to ease the monetary policy in the wake of heightened trade tensions and tariff uncertainties affecting the external sector, according to UOB, which is expecting 50-basis point (bp) cuts in the OPR in the second half this year, one in each quarter, which will take the OPR to 2.5% by year-end.

The current OPR rate of 3% has been kept unchanged since May 2023.

ANZ expects BNM to trim the OPR by 25bps in the third quarter this year, given the benign inflation outlook and the weaker growth expectations.

RHB Research noted that a 25bps cut in the key interest rates in the second half cannot be ruled out, if the GDP growth falls below 4%. Its current projection is that the OPR will be kept at 3% through 2025, assuming GDP growth stays within the 4–5% range and inflation remains contained.

Malaysia’s headline inflation eased to 1.5% in the 1Q2025, while core inflation — which strips out volatile items — edged up slightly to 1.9%. The lower headline reading was driven by a decline in utility and mobile services prices, partially offset by higher rental inflation.

Looking ahead, the central bank expects inflation to remain moderate throughout the year, supported by benign global cost conditions and an absence of excess domestic demand.