KUALA LUMPUR (June 16): Malaysia’s economic growth is expected to lose further momentum from the second quarter of 2025 after three straight quarters of slowing expansion, said Maybank Investment Bank (Maybank IB), citing rising global uncertainties.

Maybank maintained its forecast for the country’s gross domestic product (GDP) at 4.1% for the full year, after a 4.4% year-on-year expansion in the first quarter of 2025.

Although the research house's forecast falls short of the official 4.5%-5.5% growth target, the government has already signalled a possible downward revision to the estimate in light of the US’ recent move to impose reciprocal tariffs on key trading partners.

“External headwinds are centred around heightened uncertainties stemming from evolving US trade policies and tariffs, as well as the outcome of Malaysia’s trade and tariff negotiations with the US,” said the research house.

While trade tensions between the US and China have eased, Maybank IB warned of growing risks of a US-EU trade conflict. It also pointed to the unpredictability of product-specific tariffs — including the US doubling duties on imported steel and aluminium — and the possibility of new tariffs on semiconductors, pharmaceuticals, and smartphones.

Domestically, with a potential GDP downgrade in sight, Maybank IB said the government’s goal to reduce the fiscal deficit to 3.8% of GDP from 4.1% in 2024 may be difficult to achieve.

Other domestic policy risks include the delayed rollout of the RON95 fuel subsidy rationalisation, the broadening of the sales and service tax, and adjustments to the e-invoicing implementation timeline — all of which could weigh on efforts to reduce the fiscal deficit.

Nevertheless, Maybank IB believes domestic demand will be the key driver in sustaining economic momentum, particularly through consumer spending and an ongoing investment upcycle.

It noted that consumer spending is being bolstered by measures such as civil service pay and pension hikes, a higher minimum wage, increased cash assistance for low-income groups, and personal income tax reliefs. A strong job market and the continued recovery in tourism are also supporting household expenditure.

On monetary policy, Maybank IB said Bank Negara Malaysia’s moves will be closely watched, especially following its surprise 100-basis-point cut in the statutory reserve requirement in May.

Given the backdrop of moderating growth and subdued inflation, the research house expects the central bank to reduce the overnight policy rate by 25 basis points in the third quarter of 2025.