Economic Focus: 2025 outlook: Rejuvenating the economy

• Strong underlying fundamentals cement position of strength in the face of rising external uncertainties and trade protectionism
• 2025 ASEAN chairmanship underpins a strong year of robust economic activities with extensive trade collaborations as positive spillover
• We are upbeat on 2025 growth prospects and expect 4.7% GDP growth

Domestic economy firing on all cylinders.

Our conviction of a second economic take-off under the Madani Economic Framework remains firm. 9M2024 GDP growth came in at 5.2%, on track to achieve the government's revised projection of 4.8%-5.3% (from 4%-5%) in 2024 while 2025 growth projection was guided at 4.5%-5.5%, indicating a sustained growth trajectory. Robust labor market with low unemployment rate of 3.2% and historic high labour force participation rate will ensure resilient and steady domestic consumption. Meanwhile, the long-overdue surge in investment activities backed by record high approved investments in 2021-2023 underlines the robust prospects of investment upcycle in Malaysia which will accelerate the economic take-off envisaged by the government to be a paradigm shift for Malaysia.

ASEAN chairmanship to propel Malaysia to greater heights.

With Malaysia assuming the ASEAN chair in 2025, key regional agenda such as climate change, trade facilitation, green transition and digital economy could be prioritized, dovetailing with Malaysia's strategic developments and flagship projects under the New Energy Transition Roadmap (NETR) and New Industral Master Plan (NIMP) 2030. The Johor-Singapore special economic zone (JS-SEZ) - the first cross-border SEZ in ASEAN - is also expected to see more progress with both Malaysia and Singapore ironing out relevant issues including incentives, cross-level meetings and technical workshops collectively will be held throughout the year in Malaysia which will provide a strong fillip to domestic consumption. As Malaysia seizes the opportunity to wield its influence to strengthen the ASEAN economic bloc with better regional integration in 2025, this may enhance overall economic resilience amidst rising trade protectionism and external uncertainties. 

Fiscal reforms offer fleeting pains, but lasting gains.

Budget 2025 showcases the government's commitment to pursue fiscal consolidation and rebuild fiscal buffer for long-term sustainability. Notably, targeted subsidy for petrol is expected to be implemented in mid-2025 which could save RM8bn (from RM20bn subsidy bill) from the top 15% consumers. Monthly minimum wage will be raised by 13% to RM1.7k from RM1.5k and various income tax reliefs on healthcare, education and insurance have been increased/extended which will ensure household disposable income remains intact. More importantly, 2025 budget deficit will fall to the lowest since 2019 at 3.8% (vs 4.3% in 2024), as the government is committed to achieve its medium-term deficit target of 3%. 

All stars aligned.

We are optimistic of Malaysia's economic outlook, and project 2025 GDP growth to come in at a stellar 4.7% which is in line with the government's forecast. Fundamentals remain strong as Malaysia's economy continues to take comfort from its resilient domestic demand, underpinned by sustained household spending. Key downside risks include slower-than-expected recovery in external demand and heightened geopolical tensions. 

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