Malaysia’s growth likely slowed in 3Q as US tariffs temper export momentum, say economists

Malaysia’s economic growth likely moderated slightly in the July-September quarter.

Economists say Malaysia’s economic growth likely moderated slightly in the July-September quarter, after recording a steady 4.4% expansion in both the first and second quarters, as export growth momentum normalised following earlier front-loaded activities, partly due to new US tariff measures taking effect in August.

According to a Bloomberg poll of 17 economists, the gross domestic product (GDP) is expected to grow 4.2% year-on-year in 3Q2025. Economists broadly expect domestic demand to cushion the impact of softer exports.

Bank Muamalat Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid, when contacted, also projected a 4.2% growth for 3Q2025.

He said the growth was supported by firm domestic spending and ongoing fiscal assistance such as Sumbangan Tunai Rahmah (STR) and Sumbangan Asas Rahmah (Sara) cash assistance programmes, alongside a sustained low unemployment rate of 3% for five consecutive months.

“Lower unemployment suggests more Malaysians are employed and have the means to spend,” said Afzanizam.

“At the same time, private investment should hold up well given higher investment approvals and ongoing infrastructure projects,” he said.

However, Afzanizam expects weaker external demand following the commencement of the new US reciprocal tariffs in August.

Afzanizam said electrical and electronics (E&E) shipments performed strongly in July and August, rising 22.5% and 10.1% respectively, likely due to front-loading ahead of the tariff implementation.

“The same momentum may not continue beyond September as the 19% tariff came into full effect. Perhaps there could be further moderation in growth. Still, the impact to the exporters of the ringgit’s appreciation is manageable — cheaper imported inputs could cushion their margin pressures,” he added.

For the January to August period, Malaysia’s trade with the US expanded 16.6% year-on-year to RM242.09 billion. Exports rose 17.5% to RM146.42 billion, driven by stronger shipments of E&E products, processed food, as well as machinery, equipment and parts. Imports from the US increased 15.2% to RM95.67 billion.
 
The export performance, however, has been uneven, with July’s shipments rising 6.8% year-on-year before easing to 1.9% in August as the new US tariffs took effect, weighing on export momentum.

MARC Ratings chief economist Dr Ray Choy said the month-to-month fluctuations highlight the fragility of global trade, as tariff frictions, soft global demand, and ongoing adjustments to external uncertainties continue to weigh on Malaysia’s export competitiveness and production linkages.

Choy expects the GDP growth to moderate to 4% in 3Q2025, as early-year front-loaded activities fade and external uncertainties persist to weigh on exports.

“The services sector, which accounts for around 60% of GDP, remains the key anchor. Improved purchasing power following civil service pay revisions and higher minimum wages should sustain domestic demand,” he told The Edge.

Choy highlighted that subdued inflation, which averaged 1.4% year-to-date in August, continues to underpin household spending, even after the July sales and service tax (SST) expansion.

“So far, the SST expansion has not had a significant dampening effect on private consumption,” he said, adding that the wholesale and retail trade rose 4.3% year-on-year in August, maintaining the pace seen between January and July.

“With inflationary pressures remaining subdued and headline CPI [consumer price index] likely to stay below 2%, household spending remains expansionary, continuing to anchor domestic demand in the second half of the year,” Choy said.

Source: The Edge Malaysia