Malaysian economy resilient, growth in 2025 expected to exceed 5%: MARC Ratings chief economist

KUALA LUMPUR: Global economic growth is projected to stabilise at 3.2% in 2025, slightly below prior periods, with the United States likely to experience a slower rate due to the cumulative effects of Federal Reserve interest rate increases, higher unemployment and cooling gross domestic product.

Conversely, Malaysia’s growth is expected to surpass 5%, outperforming Asean’s average of 4.5% and China’s weaker trajectory amid US economic nationalism.

MARC Ratings Bhd chief economist Dr Ray Choy said 2025 promises a mixed economic outlook marked by geopolitical uncertainties, policy shifts and evolving market dynamics.

Geopolitical events – such as those unfolding in South Korea and in France – underscore the financial markets’ sensitivity to political stability, he added.

Choy noted that the bond and foreign exchange markets remain particularly reactive, as evidenced by sharp movements following Donald Trump’s election as US president for the second time.

“In Asia, Malaysia stands resilient despite China’s economic slowdown and prolonged real estate downturn. Trade data shows Malaysia outperforming regional peers, with exports recovering strongly since late 2023. Notably, the effects of US tariffs since 2018 have reshaped trade flows, benefiting Malaysia and Asean through diversification, though at the expense of overall trade growth.

“Looking ahead, economic nationalism and protectionist policies could pose both challenges and opportunities,” he said during the MARC’s 360 Outlook 2025 briefing recently.

Choy said while Vietnam has thrived on trade diversion, Malaysia’s steady export performance and robust manufacturing activity signal a promising outlook. As markets navigate these uncertainties, maintaining focus on stability and adaptability will be crucial for sustained growth in 2025.

Touching on geopolitical shifts, economic nationalism and trade policies that are reshaping global markets, Choy said Vietnam’s proximity to China positions it as a key destination for factory relocations amid escalating geopolitical tensions, notably between Taiwan and China.

“While this benefits Vietnam, the US-China trade dynamics and protectionist policies present mixed outcomes for the broader Asian region. They offer advantages but raise long-term concerns about economic nationalism’s persistence,” he said.

Globally, Choy highlighted that inflation has eased since 2023, but much of this is attributed to a high base effect following pandemic-induced supply chain disruptions. He said economies are diversifying supply chains, mitigating risks and stabilising value chains.

“Central banks, including the US Federal Reserve (Fed), are responding to these dynamics with monetary easing. The Fed has already cut rates by 75 basis points and is expected to reduce them further by 2025, which could stimulate global liquidity and stabilise bond markets,” Choy said.

In China, prolonged rate cuts reflect efforts to counter gross domestic product growth challenges and reallocate capital to higher-yielding investments.

Choy said these trends indicate a global tilt toward accommodating monetary policies, fostering improved liquidity and market stability.

“In Malaysia, the economic outlook is buoyed by sustained investments and trade diversions, which have bolstered gross fixed capital formation. Although high inflation looms for 2025, Malaysia’s relatively low inflation offers flexibility to rationalise subsidies without significant economic disruption.

“The ringgit has shown resilience despite October’s capital outflows, maintaining stability compared to historical peaks,”

Choy noted that Malaysia’s bond market has been less volatile than that of regional counterparts such as India and Indonesia. This is supported by stable inflation expectations and a relatively predictable interest rate environment.

The anticipated decline in US interest rates could narrow the Malaysia-US yield differential, enhancing the appeal of Malaysian government securities.

“Commodities have stabilised post-pandemic, but prices remain higher than pre-2020 levels. With trade protectionism fears gradually abating, Malaysia stands to benefit from sustained global trade recovery, bolstered by its strategic policies and stable macroeconomic conditions.”

While global markets grapple with volatility, Malaysia’s prudent fiscal and monetary measures position it as a regional anchor of stability heading into 2025, Choy said.