Malaysia’s economic growth is projected to decelerate further from Q2 2025, following three consecutive quarters of slowing expansion, according to Maybank Investment Bank (Maybank IB), which attributes the trend to increasing global uncertainties.
Despite this, Maybank has kept its full-year GDP growth forecast unchanged at 4.1%, after the economy grew 4.4% year-on-year in Q1 2025.
While Maybank’s forecast remains below the official growth target of 4.5%–5.5%, the government has indicated that it may revise this estimate downward, especially in response to the US decision to impose reciprocal tariffs on major trading partners, The Edge Malaysia reports.
“External headwinds are centred around heightened uncertainties stemming from evolving US trade policies and tariffs, as well as the outcome of Malaysia’s trade and tariff negotiations with the US,” stated the research house.
Although trade tensions between the US and China have subsided, Maybank Investment Bank cautioned about rising risks of a potential US-EU trade dispute. It also highlighted the uncertainty surrounding product-specific tariffs, such as the recent doubling of US duties on imported steel and aluminium, and the potential introduction of new tariffs on items like semiconductors, pharmaceuticals, and smartphones.
Furthermore, on the domestic front, with a GDP revision likely, Maybank IB noted that the government’s aim to narrow the fiscal deficit to 3.8% of GDP in 2025 from 4.1% in 2024 could prove challenging.
Additional domestic policy risks cited by Maybank IB include delays in implementing the RON95 fuel subsidy rationalisation, the expansion of the sales and service tax, and changes to the e-invoicing rollout schedule, all of which could hinder efforts to bring down the fiscal deficit.
Despite these challenges, the research house maintains that domestic demand, especially through robust consumer spending and a continued investment upcycle, will remain the primary engine supporting Malaysia’s economic momentum.
Moreover, Maybank highlighted that consumer spending is receiving a boost from various supportive measures, including increases in civil service salaries and pensions, a higher minimum wage, expanded cash aid for low-income households, and personal income tax reliefs.
In addition, a resilient labour market and the ongoing rebound in tourism are further contributing to household spending.
Regarding monetary policy, Maybank noted that Bank Negara Malaysia’s actions will be under close scrutiny, particularly after its unexpected 100-basis-point cut to the statutory reserve requirement in May.
In light of slowing economic growth and tame inflation, the research house anticipates a 25-basis-point reduction in the overnight policy rate during the third quarter of this year.