Bank Negara's revised growth projection realistic
The central bank on Monday lowered its projection to to 4.0-4.8 per cent from 4.5-5.5 per cent due to a more cautious global outlook amid escalating geopolitical risks and trade tensions.
Bank Muamalat Malaysia Bhd chief economist Dr Afzanizam Abdul Rashid said Malaysia's domestic economy remains a vital anchor, noting continued job creation and rising investment activity.
"We have to acknowledge that our domestic demand is still resilient. The unemployment rate is currently at 3.0 per cent as of May 2025, the lowest since April 2015.
"This would mean more Malaysians are employed and have been receiving income which allows them to spend," he told Business Times.
Afzanizam added that the sharp rise in capital goods imports reflects sustained investment momentum, suggesting that businesses are continuing to spend on expansion and productivity despite external uncertainties.
He also pointed to recent policy moves, including lower overnight policy rate (OPR) and a RM2 billion fiscal package featuring direct cash transfers, as signs that policymakers are actively managing risks.
"All this should be able to mitigate the impact from the US tariff shocks and heightened geopolitical risks. I would say it's a realistic target," he added.
Echoing similar sentiments, economist Dr Geoffrey Williams said the downward revision has been anticipated and aligns with broader expectations.
However, he cautioned that the lower end of the new range is more likely due to tariffs.
"Domestic demand is robust and will be helped by lower OPR and the RM100 cash handouts.
"Although total trade and exports have been strong, it is net trade that matters for growth and this has been squeezed very much by front-loading and volatility due to the delayed tariff negotiations," he said.
Williams noted that securing a favourable tariff deal is crucial for Malaysia to stay competitive with regional peers like Vietnam and Indonesia.
He said failing to do so could shave up to one per cent off GDP growth or RM20 billion as a result of protecting domestic markets and preserving policies like Bumiputera preferences.
Williams said the current policy stance is appropriate and further interest rate cuts are unnecessary for now.
"The OPR cut should keep growth within the new forecast range so there is no need to cut further."
INFLATION OUTLOOK AND SUBSIDY RATIONALISATION
Bank Negara also revised its headline inflation forecast for 2025 sharply lower, now expecting it to average between 1.5 and 2.3 per cent from the previous range of 2.0-3.5 per cent.
It said the inflationary pressure from global commodity prices is expected to remain limited, contributing to moderate domestic cost conditions.
Meawnhile, the impact of domestic policy measures is expected to remain contained.
Afzanizam said falling oil prices and the government's approach to targeted subsidies have played a key role in moderating price pressures.
He said the lower crude oil prices trajectory has helped to reduce the subsidies bill and be able to open the window of opportunity for the government to enact the fuel subsidies rationalisation.
"Furthermore, the government remain consistent in their approach with respect to subsidies as they aspire to give the subsidies to those who are qualified.
"On that note, the impact from the RON95 subsidies rationalisation is likely to be manageable," he said.
Williams said falling input prices are reinforcing disinflationary trends.
"The falling producer price index is consistent with low consumer price index and reflects price caution due to trade tensions, lower oil prices and a strong ringgit.
"It is likely that the lower PPI will be reflected in lower inflation for the year across all sectors.
"This is good for consumers but reflects tight market conditions for businesses. Businesses are being competitive by moderating producer prices, so there is no need to interfere," he said.
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