Malaysia Defies Global Trade Tensions With Solid Growth - IMF

KUALA LUMPUR, Dec 19 (Bernama) -- Malaysia has shown notable resilience against global trade tensions and policy uncertainty with its economy growing at a healthy pace this year, supported by strong domestic consumption and investment, solid employment growth, and a global tech-sector upcycle.

“The strong performance in part reflects sound economic policies — the authorities have maintained prudent macroeconomic and financial policies,” International Monetary Fund’s (IMF) Mission Chief for Malaysia Masahiro Nozaki said after consultation with Malaysian authorities and other stakeholders.

The October 2025 Malaysia-US trade deal has helped to reduce uncertainty for businesses and consumers in Malaysia. Nonetheless, the global landscape has shifted, with global uncertainty becoming a new normal. Against this backdrop, rebuilding Malaysia's macroeconomic buffers remains critical, it said.

“Malaysia’s economic resilience is expected to continue in the near term, supported by strong domestic demand. IMF staff projects growth to slow marginally from 4.6 per cent in 2025 to 4.3 per cent in 2026, mainly reflecting the impact of higher US tariffs on Malaysia,” Nozaki said in a statement here today.

The fund said risks to growth are tilted to the downside and stem mainly from external factors.

“As a highly open economy, Malaysia could be affected by a slowdown in external demand in case of an escalation of protectionist trade measures, global financial market volatility, and a potential bust of the artificial intellegence (AI) boom,” he said.

However, upside risks can also materialise, including breakthroughs in global trade negotiations, stronger-than-envisaged tourism activities, and faster implementation of structural reforms.

Prudent Fiscal Management

“Malaysia’s commitment to prudent fiscal management has been demonstrated by the passage of the landmark Public Finance and Fiscal Responsibility Act in 2023 and a steady reduction in the fiscal deficit since 2022,” said Nozaki.

He said IMF staff welcomes the authorities’ plan to reduce the fiscal deficit further to 3.5 per cent of Gross Domestic Product (GDP) in 2026 and to 3 per cent of GDP by 2028.

“Continuing to rebuild fiscal buffers through further high quality and sustainable revenue and expenditure measures remains critical, as federal government debt, standing at 64.6 per cent of GDP at end-2024, is still above pre-pandemic levels.

“Staff welcomes ongoing efforts to strengthen fiscal transparency and spending efficiency, including the passage of the new Government Procurement Act. Inflation, averaging 1.4 per cent during January-October 2025, is projected to remain stable and gradually return to its long-term average of 2 per cent.”

In this context, he said IMF staff assesses the current monetary policy stance as appropriate.

Monetary Policy Should Stay Data-Dependent

Going forward, monetary policy should stay data-dependent to continue to anchor inflation expectations and preserve growth amid heightened global uncertainty, he said, adding that IMF staff welcomes the authorities’ continued commitment to exchange rate flexibility and ongoing efforts to deepen the foreign exchange market.

“Systemic financial sector risks remain contained. Malaysian banks maintain ample capital and liquidity buffers, corporate and household balance sheets are healthy, and the housing market remains stable.”

Nozaki said continued vigilance is important against pockets of vulnerabilities, such as highly leveraged households, banks’ exposure to firms affected by the US tariffs, and the linkage between banks and non-bank financial institutions.

“Banks’ external funding risks remain contained and mitigated by their holding of ample foreign currency assets, though continued monitoring is warranted given elevated global financial market risks.”

Swift implementation of structural reforms under the 13th Malaysia Plan (13MP) for 2026-30 is key for further domestic-driven and inclusive growth. Labour market reforms aimed at increasing private sector wages, reducing skill-related underemployment, and raising female labour force participation can help achieve the ambitious development goals under the 13MP.

Deeper trade and financial integration within ASEAN can boost long-run growth potential in Malaysia.

In the statement, the IMF team also thanked the officials of the Government of Malaysia and Bank Negara Malaysia, other public institutions and representatives from the private sector for the productive discussions.

-- BERNAMA