Malaysia Unveils Strategy to Safeguard Economy!

The government has unveiled a policy response aimed at buffering near-term downside risks while supporting medium-term economic resilience. Although the impact of Trump’s tariff on the economy remains uncertain, Kenanga Research (Kenanga) expects Malaysia to benefit from trade and investment diversion as the US and China decouple.  

Malaysia may face weaker external demand in the second half of 2025 (2H25), particularly from the US if the reciprocal tariff or higher tariff is set to be implemented after the 90-day pause. Measures proposed include: 

Export-Oriented Measures: Assisting businesses impacted by the tariffs, especially small and medium enterprises (SMEs). This includes RM1 bil in government guarantees to help SMEs access bank financing, RM500 mil in soft loans via development financial institutions (DFI) and continued targeted aid for directly impacted exporters.

 

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Promoting Regional Cooperation and New Markets: Emphasis on diversifying exports to new markets like Europe, the Middle East, Central Asia and South America, while strengthening ASEAN trade via ASEAN Power Grid and cross-border trade activities.

An additional budget worth RM50 mil has been allocated to MATRADE. Previously the government has allocated RM40 mil under the Market Development Grant (MDG) to help exporters expand to new markets. 

Leveraging existing partnerships with ATIGA, DEFA, RCEP and CPTPP, as well as strengthening ties with BRICS, should help Malaysia. 

Besides measures focusing on exporters, the government is also accelerating infrastructure projects, including flood mitigation, the repair of dilapidated schools, and the construction of clinics, with expedited approval processes and implementation, particularly for small contractors in the G1-G4 categories. 

Stimulating Domestic Demand: To support private spending, government may increase the cash assistance or e-wallet transfers for targeted groups, with conditions to encourage spending in sectors like food, retail, and tourism. Sector-specific incentives, such as tourism vouchers or domestic travel subsidies via e-wallets, could boost the services sector and digital economy. 

Boosting Services Exports: There is potential for the government to intensify efforts in promoting services exports like tourism, education, and healthcare, in line with Visit Malaysia 2026 and taking opportunity from the potential diversion of large tourists and students from China. Expanding visa facilitation, particularly for countries like China and India, will also support the tourism sector going forward. 

Redirecting Export Surplus to Domestic: This includes electronics and processed food products which can be partially redirected to the domestic market. While the domestic market may not fully absorb the exports, it could provide some relief to exporters. 

For now, Bank Negara Malaysia is likely to keep the Overnight Policy Rate on hold. Inflation remains benign, growth steady, and financial conditions manageable. However, if global trade tensions intensify and domestic growth slips below 3.5% in 2H25, the case for a rate cut could gain traction. 

In the interim, BNM is expected to prioritise targeted support instruments and preserve monetary flexibility, keeping its policy initiatives open. There are other steps which must be included:

·     Defer widening of SST further to a later date, perhaps mid-2026.

·     RON95 subsidy to continue to 2027.

·     Electricity tariff increase be frozen for now. 

These actions will alleviate costs and keep inflation checked.

  

Reference:

Malaysia unveils robust strategy to safeguard economy from global headwinds, CS Ming, Focus Malaysia, 6 May 2025