IMF upgrades Malaysia’s 2025 growth forecast amid global trade uncertainties, tariff impacts

KUALA LUMPUR: The International Monetary Fund’s (IMF) upward revision of Malaysia’s economic growth forecast reflects uncertainties surrounding global trade policies, particularly the United States (US) tariff impacts.

In its July 2025 World Economic Outlook update, the IMF raised Malaysia’s real gross domestic product (GDP) growth projection to 4.5 per cent, an increase of 0.4 percentage points from its April estimate. 

The IMF also raised its 2026 forecast by 0.2 points to 4.0 per cent, citing improved prospects across developing and emerging economies.

Bank Muamalat Malaysia Bhd chief economist Dr Afzanizam Abdul Rashid said the revision underscores how evolving trade dynamics continue to shape Malaysia’s economic outlook.

“The revised forecast demonstrates the degree of uncertainty concerning US tariff policies. It appears that the US government is open to further discussions, which could potentially lower tariff rates,” he told Bernama. 

Mohd Afzanizam further said front-loading activities among US importers earlier this year may have contributed to global growth between January and July.

He noted that these developments have inadvertently supported economic momentum in the first half of 2025, making the IMF’s revised projection reasonable.

Meanwhile, UOB Kay Hian Wealth Advisors Sdn Bhd head of investment research Mohd Sedek Jantan said the firm expects businesses to defer capital spending pending further clarity on international trade policies.

“Despite persistent uncertainty surrounding US trade tariffs and escalating geopolitical tensions, we believe the impact of trade transmission shocks on GDP will materialise with a lagged effect, typically within a 12 to 15-month horizon.

“This projection assumes no external intervention. However, such passivity is unlikely given the typical endogenous policy response from both governments and corporations in mitigating adverse economic conditions,” he said, adding that the revision by the IMF aligns with the firm’s forecast in May 2025.

Mohd Sedek stated that UOB’s position reflects a broader behavioural shift among companies and policymakers beginning in 2026. This shift aligns with strategic adjustment models.

In this context, he believes that both firms and policymakers will implement mitigation plans and adjust their strategies to address the structural pressures resulting from increased trade tariffs. 

“These forward-looking adjustments are likely to shape the medium-term growth trajectory and capital allocation patterns across key sectors,” Mohd Sedek said. 

Separately, AmBank Group chief economist Firdaos Rosli projected 2025’s growth at 3.8 per cent, slightly below Bank Negara Malaysia’s (BNM) forecast range of 4.0 to 4.8 per cent and the IMF’s 4.5 per cent.

Nevertheless, he said Malaysia’s economy could still benefit from potential improvements in external conditions.

“Any easing of US trade and non-tariff barriers would benefit Malaysia’s export outlook,” Firdaos said.

However, he said the country’s trade performance may be constrained by weaker growth in key markets such as China and the European Union, coupled with soft demand for non-semiconductor exports in the second half of the year.

Firdaos expects Malaysia’s GDP growth for the first half (1H) 2025 to be at 4.45 per cent.

“Malaysia’s growth in 2H2025 should come in around 4.5 per cent if the IMF’s forecast is on point,” he said.

On the domestic front, Firdaos said consumption is likely to remain robust, supported by benign inflation, stable labour market conditions and policy support measures.

“The 25-basis-point Overnight Policy Rate (OPR) cut, civil service wage hikes, minimum wage adjustments, and income-support initiatives are all expected to strengthen demand-side activity,” he said, adding that the inflation rate is expected to stay below two per cent.

The report by the IMF, titled “Global Economy: Tenuous Resilience amid Persistent Uncertainty”, also projected emerging marketS and developing economies to grow by 4.1 per cent in 2025 and 4.0 per cent in 2026. – Bernama

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