Malaysia’s economy posted a slower-than-projected expansion in the first quarter, as both manufacturing and construction growth lost momentum ahead of the United States imposing new tariff measures.
First-quarter gross domestic product rose 4.4% from a year earlier, government data showed Friday, undershooting consensus projections of 4.8% and marking the third consecutive period of easing growth.
The mining and quarrying sector was a drag on performance, shrinking by 4.9% amid declining production. Meanwhile, the services sector continued to underpin growth, with a 5.2% gain, but even that marked a deceleration from previous quarters.
The figures arrive as policymakers in Kuala Lumpur revisit the official 2025 GDP growth forecast—currently set at 4.5% to 5.5%—amid rising global uncertainty and volatility stemming from trade tensions.
Malaysia was hit by a 24% US import tariff, though President Donald Trump subsequently lessened the impact, temporarily reducing the duty to 10% for 90 days while ramping up levies on Chinese imports.
Chief Statistician Mohd Uzir Mahidin portrayed the economy’s resilience as rooted in domestic strength, despite persistent global challenges.
Still, analysts are bracing for possible policy easing later this year, with Kenanga Investment Bank suggesting Bank Negara Malaysia may be compelled to cut interest rates if growth trends toward 3% in the second half.
The central bank last hiked rates in May 2023 and has signaled openness to addressing the impact of tariffs through means beyond monetary policy.
Regional peers have already started to loosen policy in response to the turbulent trade environment, with the Philippines cutting rates and Singapore dialling back its currency policy stance this April. Both nations cited heightened uncertainty in the external backdrop.
Despite the current loss of steam, Malaysia remains among Southeast Asia’s most dynamic economies, posting annual expansions of 5.4% and 5% in the third and fourth quarters of 2024, respectively, and a full-year 2024 growth rate of 5.1%. This performance came after a sluggish world demand and a subdued export climate in 2023.
The labor market has so far remained robust, characterized by stable unemployment at 3.1% and rising employment. Seasonal lifts from Chinese New Year, Ramadan preparations, and the start of the school year also helped to keep domestic consumption buoyant.
Nevertheless, the country’s growth trajectory now faces challenges from evolving global trade policies. Malaysian authorities are in talks with Washington to secure better exemptions and minimize tariff exposure, aiming to cushion the impact on local exports. The government has emphasized that it has no plans to retaliate with counter-tariffs.
