This article first appeared in The Edge Malaysia Weekly on February 10, 2025 - February 16, 2025

FOR the first time in years, Asean’s gross domestic product (GDP) growth may surpass that of Asia-Pacific, and even rank among the highest among Asian countries in 2025, said Prof Yeah Kim Leng, Sunway University director of the economic studies programme.

“Perhaps for the first time, we may see Asean growth exceeding that of Asia-Pacific. Asean growth may hit 5% to 6%. And that would, perhaps, be higher than the growth of the Chinese economy,” he said.

During the panel session titled “Economics and geopolitics”, Yeah said Asean is expected to be a beneficiary of the ongoing trade war between the US and China, and if Donald Trump, the newly elected US president, increases tariffs on more countries around the world.

Moreover, Trump’s trade and tariff policy is expected to have an inflationary impact on the US economy, which means the US Federal Reserve may keep interest rates higher for longer. This could translate into a relatively stronger US dollar against other emerging market currencies, which would make Asean products and services cheaper to US purchasers and consumers.

Based on news reports, Trump signed an executive order on Feb 1 that imposes 25% tariffs on imports from Canada and Mexico, while adding an additional 10% levy on goods from China.

However, Trump announced three days later that he had agreed to hold off on tariffs on Mexico and Canada pending further negotiations on several key issues, including the migration and flow of fentanyl, a deadly drug, into the US.

Yeah added that within Asean, Vietnam is more at risk of being hit with higher levels of tariffs as it had a trade surplus of over US$110 billion in the first 11 months of 2024 with the US. Thailand is next, at over US$20 billion.

Commenting on Malaysia, Yeah said he expects its economy to remain resilient this year, growing at about 5% at a time when the global economy is expected to slow and a soft landing is foreseen for the US economy.

He said Malaysia’s growth could be partly supported by strong private investment growth. “Strong private investment growth will likely elevate our investment-to-GDP ratio to about 18% from 15%. This is the key to Malaysia’s structural upgrading and expansion of production capacity.”

The Johor-Singapore Special Economic Zone (JZ-SEZ) is also expected to contribute positively to Malaysia’s economic growth. Yeah is optimistic about the JS-SEZ, pointing out that it is different from Iskandar. However, a modern and conducive living environment is key to attracting talents into the zone, on top of good connectivity between both countries.

“The chances of success will likely be much greater for JS-SEZ as compared to Iskandar. Looking at the [inflows of foreign direct] investments currently, we are seeing a mini-boom in Johor,” he said.

On the other hand, Julia Goh, senior economist at UOB Malaysia, cautioned investors that the local currency could weaken this year against the US dollar (USD) while holding up well against other major currencies.

During the panel session, Goh said the ringgit had strengthened significantly against the USD in the middle of last year, reaching 4.12 from 4.80 earlier in the year.

She said it was because the Malaysian economy had grown faster than most investors had expected and there was a sharp drop in US interest rates later on.

At the time of writing, Goh expects the ringgit to trade at 4.55 against the USD by year end. But such a view could change depending on market and economic developments.

Goh said Malaysia has good news flow on the local front moving forward, but it is not insulated from external headwinds, mainly US President Donald Trump’s trade and tariff policies and lower growth in the Chinese economy.

“Looking at the way the market has priced in some of the tariff [news], it could be inflationary for the US, which would mean the Fed keeping interest rates higher for longer. I believe the dollar will likely still stay strong for a few more quarters.

“The other factor is China. It is facing a lot of uncertainty in its economic recovery, and we know the ringgit and renminbi are very closely correlated. If the renminbi breaks psychological thresholds and weakens against the USD, the ringgit could follow,” said Goh.

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