KUALA LUMPUR (Feb 14): Malaysia's economic growth is expected to moderate in 2025 despite a solid performance in 2024, as external uncertainties and slower investment momentum weigh on prospects, according to economists.

Bank Negara Malaysia (BNM) announced on Friday that the country's gross domestic product (GDP) grew 5% year-on-year (y-o-y) in the fourth quarter of 2024, surpassing the advance estimate of 4.8% by the Department of Statistics Malaysia (DOSM) last month.

However, the 4Q economic growth was slightly below 3Q's revised 5.4% y-o-y expansion. Full-year GDP growth came in at 5.1%, sharply higher than 3.6% in 2023.

Looking ahead, economists foresee slower growth in 2025, projecting GDP expansion for the year at between 4.5% and 4.8%. They anticipate that domestic consumption will continue to drive the economy, supported by favourable labour market conditions and fiscal policies.

However, they cautioned that external factors, such as global trade tensions and slower growth in major export markets like the US and China, could pose downside risks.

ANZ Research forecasted Malaysia's GDP growth at 4.5% in 2025, citing signs of slowing investment activity and external demand. The research house said that while private consumption remains a key growth driver, the capital expenditure (capex) cycle appears to be peaking, with business approvals and foreign investment data softening.

Additionally, weaker export orders and subdued global trade prospects may weigh on the manufacturing sector.

"The onus of growth will shift to household consumption this year," said ANZ, adding that wage hikes for civil servants and a higher minimum wage should support spending.

Despite the expected slowdown, ANZ believes BNM will maintain its current policy stance, describing it as growth-supportive.

Capital Economics, meanwhile, projected a GDP growth of 4.8% for 2025, attributing the moderation to softer investment growth and potential fiscal tightening. The research house expressed concern over weak consumer spending, which has contracted for two consecutive quarters, and the possibility of reduced disposable incomes if the government proceeds with subsidy cuts on fuel and food.

"Business investment could also struggle as firms hold back due to elevated uncertainty on tariffs and global trade tensions," said Capital Economics.

However, it pointed to the ongoing data centre construction boom as a bright spot for investment activity.

Similarly, HSBC Global Research also forecasted a 4.8% GDP growth rate for 2025, highlighting Malaysia's diversified trade portfolio and investment boom as key buffers against external volatility.

The research firm observed that while global uncertainties, particularly relating to US-China trade relations, pose risks to exports, Malaysia's role in the global tech supply chain offers potential tailwinds.

"Private consumption remained resilient, thanks to an ongoing labour market recovery and still-generous subsidies. It will likely be further aided by recent administrative policies including wage hikes for civil servants and a hike in minimum wages," said HSBC.

It expects no monetary policy changes from BNM but flagged a potential rise in inflation following the planned RON95 fuel subsidy rationalisation in mid-2025.

All three research houses expect Malaysia's 2025 GDP growth to remain within the government's official forecast range of 4.5% to 5.5%, albeit at the lower end.

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