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Bank Negara Malaysia (BNM) has recently revised Malaysia's 2025 GDP growth projection, setting a new range of between 4.0% and 4.8%. This revision takes into account various tariff scenarios, including the possibility of continued elevation of tariffs and more favourable trade negotiation outcomes.
The revised GDP growth projection, however, does not include specific details about the impact of these tariff scenarios on individual sectors or industries. It also does not specify the reasons for the downward revision from the previous projection of 4.5% - 5.5%.
Despite this, the Malaysian economy remains resilient, supported by a supportive environment for structural reforms. The sustained strength in economic activity, coupled with moderate inflation, provides a solid foundation for pursuing structural reforms aimed at creating a more resilient and competitive Malaysia in the future.
Key Trade Negotiation Developments
Malaysia's trade landscape is undergoing significant changes. The latest trade negotiation outcomes for 2025 include ongoing Free Trade Agreement (FTA) talks with the European Union (EU), the Gulf Cooperation Council (GCC), and continued negotiations to reduce new U.S. tariff pressures.
- The Malaysia-EU FTA (Meufta) negotiations are progressing, with the second round scheduled for November 2025. The first round covered 21 chapters, including goods trade, services, investment, and new areas like sustainable food systems and trade for sustainable development. Bilateral trade with the EU reached RM218.9 billion in 2024, supporting Malaysian firms in global supply chains and reducing trade deficits.
- Malaysia has launched official FTA negotiations with the GCC after signing a joint statement in May 2025. Investments from GCC countries into Malaysia have totaled RM105.9 million since 2021, focusing on manufacturing and services sectors.
- Malaysia is negotiating with the U.S. to reduce the 25% tariffs imposed in August 2025 on Malaysian exports. The U.S. is Malaysia’s second-largest trade partner, with 2024 trade rising nearly 30% to RM324.9 billion.
Impact on Malaysia’s 2025 GDP Growth
The tariffs from the U.S. introduce downside risk, particularly for export-sensitive sectors like semiconductors, palm oil derivatives, solar panels, and rubber gloves. This could constrain export growth and margins in affected industries. However, Malaysia's strategic pivot—including deepening ties with China and the EU, launching FTAs with the GCC, and focusing on domestic demand and digital innovation—provides resilience. Government measures such as suspending Sales and Service Tax (SST) expansion and providing RM1.5 billion soft loans for SMEs help cushion impacts.
The diversification of trade partnerships and ongoing FTA negotiations are expected to strengthen Malaysia's role in global supply chains, reduce trade deficits, and support export competitiveness. This diversification partly offsets risks from U.S. tariffs.
Overall Outlook
While there is some upward pressure on export costs and uncertainty from U.S. tariffs, Malaysia’s proactive trade negotiations with the EU and GCC, coupled with domestic economic resilience, are likely to mitigate negative effects, supporting a moderate positive contribution to Malaysia’s 2025 GDP growth projection. The net impact depends on the final outcomes of ongoing tariff negotiations and the successful implementation of trade agreements.
The uncertainties in the GDP growth forecast are on both the downside and the upside, reflecting global economic uncertainties. However, the Malaysian economy, according to BNM Governor Datuk Seri Abdul Rasheed Ghaffour, is supported by the outcome of structural reforms undertaken over the years.
[1] Source 1
[2] Source 2
[3] Source 3
[4] Source 4
- The ongoing Free Trade Agreement (FTA) negotiations between Malaysia and the European Union (EU) may positively contribute to Malaysia's economy by supporting Malaysian firms in global supply chains, reducing trade deficits, and strengthening Malaysia's role in global supply chains, as indicated in Source 1.
- The impact of the U.S. tariffs on Malaysia’s environmentally-sensitive industries, such as palm oil derivatives and solar panels, could lead to an increase in production costs and potential environmental concerns related to deforestation, according to Source 2.
- Despite the downward revision of Malaysia's 2025 GDP growth projection, Kuala Lumpur's finance and business sectors continue to showmarked interest and optimism in the city's future, with increasing foreign direct investment and initiatives to transform Kuala Lumpur into a smart and sustainable city, as suggested in Source 3 and Source 4.
