By Danial Azhar and Ashley Tang
KUALA LUMPUR (Reuters) -Malaysia’s economy grew 4.4% in the first quarter of 2025 from a year earlier, slower than the previous quarter, with the central bank projecting a weaker outlook due to trade tensions affecting spending and investment.
Growth in the January to March period was in line with government estimates, but below the 4.5% expansion forecast by economists surveyed by Reuters. The economy grew a revised 4.9% in the final quarter of 2024.
The central bank said first quarter economic growth was driven by sustained household spending growth amid positive labour market conditions and policy support, as well as steady expansion in investments, and continued export growth.
“Growth was affected by lower oil and gas production, and normalisation in motor vehicle sales and production,” Bank Negara Malaysia Governor Abdul Rasheed Ghaffour said at a press conference.
On a quarter-on-quarter seasonally adjusted basis, first quarter GDP expanded 0.7% vs a 0.2% contraction in the previous quarter.
This year’s growth is expected to be slightly lower than the 4.5% to 5.5% forecast range, Abdul Rasheed said, adding a new estimate would be announced in the next month or two.
“The balance of risk to the growth outlook is currently tilted to the downside,” he said, adding slower growth in major trading partners due to trade restrictions would affect spending and investment activities in Malaysia.
Prime Minister Anwar Ibrahim said earlier this month that the suspension of most of the U.S. tariffs until July meant the economic impact was manageable for now, but Malaysia was unlikely to meet its growth forecast this year.
Malaysia is facing a 24% tariff rate on its exports to the U.S. from July, unless it can negotiate a reduction.
Abdul Rasheed said first quarter growth was boosted by exports as companies front-loaded ahead of potential tariffs, with demand for Malaysian electrical and electronics products expected to be sustained.
MOUNTING PRESSURE TO CUT RATES
Capital Economics said it expects Malaysia’s growth to ease to 4.8% this year from 5.1% in 2024.
“With growth set to struggle, we think pressure on the central bank to cut rates will increase,” senior Asia economist Gareth Leather said in a note, forecasting two 25 basis point cuts this year.
The central bank kept its benchmark interest rate unchanged at 3% during its policy meeting last week, but other analysts also expect rate cuts later in the year.
In response to a weaker outlook, the bank also announced that banks’ statutory reserve requirement ratio will be lowered by 100 basis points to 1.00%, effective May 16, to ensure sufficient liquidity.
Malaysia’s current account surplus expanded to 16.7 billion ringgit ($3.92 billion) in the first quarter from 12.9 billion ringgit in the final quarter of 2024, data showed on Friday.
Headline and core inflation averaged 1.5% and 1.9% in the first quarter of 2025, respectively.
Abdul Rasheed said headline inflation is expected to remain below 3% this year, given further easing in global cost conditions and the absence of excessive demand, with new forecasts for inflation and GDP to be announced soon.
The central bank projects headline inflation between 2% and 3.5% in 2025, and core inflation at 1.5% to 2.5% after both measures came in at 1.8% in 2024.
Abdul Rasheed said the ringgit’s value remains market determined, and the central bank will continue to encourage inflows to support the currency.
(Reporting by Danial Azhar and Ashley Tang; Editing by Alasdair Pal, Jacqueline Wong, Philippa Fletcher)
