6 hours Ago By Azanis Shahila Aman
KUALA LUMPUR: Economists have concurred with the government's view that Malaysia is unlikely to fall into a recession, despite the United States' latest trade measures, which impose a 24 per cent tariff on Malaysian goods.However, the experts believe that growth projections for the year may need to be revised downward, with Malaysia's gross domestic product (GDP) forecast currently set at 4.8 per cent.
Professor Geoffrey Williams explained that a technical recession occurs when the economy contracts for two consecutive quarters.Although Malaysia might experience slower export growth due to the tariffs, he noted that the country has a long history of positive net trade that contributes to overall GDP. This trend, he said, is likely to continue, albeit with a potentially lower contribution from net trade.
"So, we should not see a technical recession," the economist and policy specialist told Business Times."A broader definition of a recession would involve contraction across many sectors, but since domestic demand is strong, most sectors will not be affected — only exporters to the US," he added.Malaysia's economy is projected to grow between 4.
5 and 5.5 per cent this year, according to Bank Negara Malaysia.Following the US reciprocal tariffs announced by President Donald Trump on April 2, William noted that it's challenging for Malaysia's economy to reach the higher end of the projected growth range.
"The upper end of this range is challenging but it is still possible for Malaysia to hit 4.5 per cent growth if the impact of the tariffs is short-term. "If Malaysia negotiates a reduction in the reciprocal tariffs quickly, as other countries are doing, then the worst impact will be short-lived.
"Universiti Utara Malaysia Associate Professor Irwan Shah Zainal Abidin said there is a chance that a full-blown trade war may be averted, which could reduce the risk of a global recession. This, in turn, would decrease the likelihood of Malaysia entering into a recession."But in the process, the growth prospect of trade-dependent economies like Malaysia will be dented, and hence the need to revise our growth rate downward for this year," he said, adding that a four per cent growth rate is still feasible.
Universiti Kuala Lumpur Business School Associate Professor Aimi Zulhazmi Abdul Rashid said while Malaysia's economy is diversified, it is not immune to the challenges posed by the global financial market's reaction to the US tariff hike.In view of this, he suggested the government should take proactive steps to boost the local economy with market-friendly policies, such as offering tax incentives to businesses and improving access to cheaper bank liquidity."Tax incentives would help businesses, particularly in the manufacturing and export sectors, weather the immediate impact of the tariffs.
"Additionally, easing access to cheaper liquidity could ensure that businesses continue to invest and expand despite the uncertainties posed by the global economic situation," he said. IDEAS Malaysia economist and assistant research manager Doris Liew said Malaysia's economic growth remains resilient, driven largely by domestic consumption.Even with the new tariffs in place, she said GDP growth is still projected to remain in the positive territory.
"The government is expected to introduce fiscal measures to cushion the impact, which should offer temporary relief and help sustain economic momentum in the short term," she added.In 2024, Malaysia exported goods worth over US$52 billion to the US, primarily from its electronics and electrical sectors, especially semiconductors and integrated circuits.Liew said increased business costs and shifting demand due to tariffs are likely to impact these key export-driven industries.
"While the current round of tariffs does not directly target these high-value components, upcoming tariffs specific to semiconductors could soon impact this critical industry."Other sectors such as energy, lumber and pharmaceuticals, appear to be exempt for now, which helps limit the immediate fallout," she explained.Bank Muamalat Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said that accelerating government spending as prescribed in the 2025 budget would be a priority to boost growth.
He said the government continues to maintain an expansionary stance in its fiscal policy, which is reflected in the fiscal deficit-to-GDP ratio of 3.8 per cent for 2025, with an all-time high budget allocation of RM421 billion this year.On Sunday, Prime Minister Datuk Seri Anwar Ibrahim addressed the issue of the 24 per cent tariff imposed on Malaysian goods by the US.
He said while a recession is unlikely, there is a need to review the country's GDP growth projection of 4.8 per cent.Malaysia, he emphasised, will not resort to retaliatory tariffs but will instead pursue a constructive and non-confrontational approach in cooperation with international partners.
He added that efforts toward a fair resolution were already underway, including the establishment of the national geo-economic command center, which he chairs.© New Straits Times Press (M) Bhd.
