Malaysia’s Q1 Economic Growth Slows to 4.5% Amid Weak Consumption and Trade Tensions

Malaysia’s economy grew 4.5% year-on-year in Q1 2025, marking its slowest expansion in a year, as domestic consumption and exports weakened, according to a Reuters poll of 21 economists. This aligns with the government’s earlier advance estimate, and is a drop from 5% growth in Q4 2024.

The slowdown comes as core sectors like services and manufacturing lost steam, affected by cautious consumer spending and fading export demand, especially amid ongoing U.S.-China trade tensions. Indicators such as retail and car sales, loan growth, and consumer goods imports pointed to weaker household consumption, said CGS International’s chief economist Ahmad Nazmi Idrus.

Economists now expect Malaysia’s full-year 2025 growth to be 4.3%, down from a previous 4.7% consensus. The IMF also cut its forecast to 4.1%. Prime Minister Anwar Ibrahim acknowledged that the government's 4.5%–5.5% growth target is at risk, though he noted the U.S. has agreed to further trade negotiations.

A new 24% U.S. tariff on Malaysian exports is set to take effect in July unless a deal is reached, adding further uncertainty. A temporary 90-day tariff truce between the U.S. and China this week may offer short-term relief but does little to resolve broader risks.

In response, Bank Negara Malaysia (BNM) reduced the statutory reserve requirement (SRR) by 100 basis points to 1.00%, injecting RM19 billion ($4.4 billion) into the banking system to support liquidity. Economists now expect BNM to cut interest rates once in 2025, revising earlier expectations of a flat 3% rate.

DBS economist Chua Han Teng warned that a renewed Trump administration and tougher U.S. tariffs could drive BNM toward further monetary easing to protect growth.