KUALA LUMPUR (Jan 16): Despite a stronger-than-expected economy, Malaysia is still vulnerable to the impact of higher US tariffs on the electrical and electronics (E&E) sector going into 2026, economists cautioned.
Official flash estimates by the Department of Statistics Malaysia (DOSM) on Friday showed that Malaysia's economy expanded by 5.7% year-on-year in the fourth quarter of 2025 (4Q2025) — the strongest pace since 2Q2024 — driven by firmer services and manufacturing activity.
For the full year, the economy is estimated to have grown 4.9% in 2025, moderating slightly from 5.1% last year.
Kenanga Research in its research report warned that the export outlook — such as the E&E industry — remains vulnerable heading into 2026, as the effects of higher US tariffs have yet to be fully felt.
“While higher US tariffs have yet to materially affect Malaysia’s economy in 2025, defying earlier expectations, the impact could emerge in 2026, posing downside risks for export-oriented sectors,” Kenanga said in its analysis.
Within just two weeks of the year, US President Donald Trump already revived a few targeted tariff measures, including a 25% levy on certain advanced computing chips, and announced a 25% tariff on countries doing business with Iran.
Even as a temporary pause in US-China tariff escalation until November 2026 may offer some breathing space for export trade and support continued supply-chain diversification, growth is still expected to moderate to around just 4.5% in 2026, UOB Global Economics & Market Research said.
Nevertheless, economists broadly expect these export-related risks to be cushioned by broad-based domestic expansion, particularly in services and construction, supported by rising household incomes from civil service salary adjustments, a lower unemployment rate, realisation of approved investments and continued targeted cash transfers.
"Offsetting catalysts [for the GDP] include the higher federal budget allocation [of] RM419.2 billion that cover[s] RM18 billion for Phase 2 of the civil servants’ pay hike in January 2026 and RM81 billion development expenditure; the Visit Malaysia Year 2026 campaign; as well as continued rollout of national master plans amid ongoing fiscal reforms and external uncertainties," UOB said.
DOSM is slated to release the official final 4Q2025 GDP figures, alongside current account data, on Feb 13.
OPR seen maintained at 2.75%
On the monetary policy front, economists largely expect Bank Negara Malaysia (BNM) to keep the overnight policy rate (OPR) unchanged at 2.75% during its announcement next Thursday.
Bloomberg data showed the median forecast of nine economists pointing to no change in the policy rate.
This could change if tariff risks recede and external conditions improve sharply, ANZ Research said.
"The strong growth outturn strengthens our view that Bank Negara Malaysia’s (BNM) next policy rate change will be a hike; though with price pressures still benign, there is no urgency to tighten policy quickly," it said.
UOB and Pantheon Macroeconomics both see no urgency for policy easing, noting that Malaysia has benefited from relatively competitive tariff treatment, ongoing semiconductor exemptions and easing external pressure as the US Federal Reserve (Fed) cuts rates.
"The Fed has also been cutting rates, and so the pressure on capital outflows has been reduced. In all, the BNM has the luxury right now to leave rate cuts in their toolbox for any fresh economic shocks," Pantheon Macroeconomics said.