Malaysia warns of export slowdown from US tariffs after economy grows 4.4% in Q2

KUALA LUMPUR - Malaysia’s growth missed official estimates in the second quarter, though the central bank said the economy is strong enough to weather an expected export slowdown

due to US tariffs.

Gross domestic product rose 4.4 per cent in the April to June period from a year earlier, slower than the 4.5 per cent advance estimate and the median forecast in a Bloomberg survey, but matching the pace of the first quarter. The economy expanded 2.1 per cent from the previous three months, Malaysia’s central bank and statistics department said on Aug 15.

Malaysia is bracing itself for trade turmoil from US President Donald Trump’s roll-out of global tariffs, with the central bank in July lowering its 2025 growth forecast range to 4 per cent to 4.8 per cent, from an earlier projection of a 4.5 per cent to 5.5 per cent expansion.

Malaysia’s Finance Ministry has separately said the economy will grow at a moderate pace in 2026 amid subdued external demand.

“Let me emphasise that our economy remains on a strong footing,” Bank Negara Malaysia governor Abdul Rasheed Ghaffour said at a briefing, noting a recent interest rate cut will provide “additional lift”. 

Monetary policy is now “consistent with our outlook for growth and inflation”. 

Global growth and trade will likely moderate in 2025 as a 19 per cent tariff on exports to the US takes effect and support from front loading dissipates, according to the central bank. Malaysia’s exports will slow for the rest of 2025, while being partly cushioned by continued demand for technology products and higher tourism activity, Mr Rasheed said.

“We expect Malaysia’s trade-reliant economy to face downward pressures from a payback in earlier exports front-loading, and weaker external demand from still-high US reciprocal tariffs of 19 per cent,” said Mr Chua Han Teng, a senior economist at DBS Bank. “Nonetheless, resilient domestic demand conditions should provide some buffer.”

Traders are pricing in a 24 per cent chance of a 25-basis-point rate cut within the next three months, and a 76 per cent probability by mid-February, according to swaps data compiled by Bloomberg. In July, the central bank cut its overnight policy rate for the first time in five years to help address risks to the economy. It also released more funds into the banking system to encourage lending and help boost economic activity.

The central bank’s dovish statement at the July meeting “leaves the door open for additional monetary policy easing in the coming months” to support growth, Mr Chua added.

Consumer spending will remain resilient and continue to anchor growth, the central bank said. Investments will also remain strong, it added.

Inflation is expected to average between 1.5 per cent and 2.3 per cent in 2025 given the “more moderate demand and cost outlook”, Bank Negara said. It will “continue to remain vigilant to ongoing developments and assess the balance of risks surrounding the outlook for domestic growth and inflation”.

While the US levy on Malaysian imports is lower than the 25 per cent threatened in July, the South-east Asian country is seeking further clarity from the US on a threatened 100 per cent levy on semiconductor imports.

On the fiscal side, the government has tweaked plans to cut subsidies on the nation’s most popular fuel, while also providing cash handouts. Its latest five-year plan also outlines around US$100 billion (S$128 billion) of development spending, even as it seeks to reduce the deficit. BLOOMBERG