E-invoicing Rollout for SMEs Deferred to 2026

The implementation of e-Invoicing for small and medium enterprises (SMEs) with annual sales between RM150,000 and RM500,000 will be postponed to Jan 1, 2026, with a six-month transition period. Finance Minister II said this would benefit over 240,000 SMEs, allowing them more time to adapt to the system. 

Meanwhile, businesses with annual sales below RM150,000—such as small food vendors—are exempted from e-Invoicing requirements, benefiting over 700,000 small traders. The government remains committed to supporting businesses in transitioning to e-Invoicing, providing free access to the MyInvois portal and mobile app for tax submission. Additionally, free nationwide training is being conducted by the Inland Revenue Board (LHDN).

Since e-Invoicing was introduced in August 2024 for companies with annual revenue above RM100 million, over 25,000 companies have adopted the system, generating 181.3 million e-Invoices. 

On another matter, employers will be required to contribute 2% to the Employees Provident Fund for foreign workers, with a matching 2% contribution from employees. Prime Minister Datuk Seri Anwar Ibrahim announced that this policy will remain in place until further review.

The government justified the move as necessary to ensure equal employment conditions between local and foreign workers, as lower employment costs for foreign workers had previously put locals at a disadvantage. Employers will be eligible for tax deductions on these contributions under Section 34(4) of the Income Tax Act 1967, up to 19% of total employee wages.

SMEs can also claim capital allowances for ICT equipment and software purchases, with the deduction period reduced from four years to three years from 2024 onwards. Additionally, SMEs can claim up to RM50,000 in tax deductions per year on consultancy fees related to e-Invoicing from 2024 to 2027. 

Personally, SMEs with turnover of up to RM3 million should implement e-invoicing in 2026 (and not in July this year). That gives a little more time for adjusting procedures and working arrangements. But, alas, that may not be feasible for a government looking for more tax sources? 

Reference:

e-Invoicing rollout for SMEs deferred to 2026, Shahrizal, BusinessToday, 20 February 2025

Remember Names!

 Remembering is a skill. Sure, there are those who have been blessed with a good memory. But they are exceptions. For most of us, remembering is a skill, like speaking in public, singing, reading, thinking, or swimming. We improve at a skill by hard work—direct effort applied with a good deal of concentration, mixed with proper know-how. 

One of the most glaring weaknesses we often confess is in the realm of remembering names. We excuse it by saying: "I'm not good at remembering names!" or "Your face is familiar, but what was that name?" That's better than: "Your breath is familiar, but not your name."

 

Source: https://www.wikihow.com/Remember-Names

There is a story told by a comedian about his neighbour, an elderly gentleman and wife who returned from their summer holiday. As a good neighbour he offered to help with the luggage. Asked where did he go? The neighbour with dementia couldn’t answer and he needed to ask his wife. Not remembering her name too, he asked the good neighbour what is the plant that grows on the side of a wall? The good neighbour replied “Lily”! “Ah yes” he said and went on to ask “Lily, where did we go for our holidays, dear?” 

The secret lies in that very brief period we stand face to face with another person—in fact, the most important person in your life at that moment. So is the name! How you fit the name with the face—and cement both together in your memory bank—is of crucial importance.

Perhaps remind yourself at each introduction and handshake:

This person is important (because he or she is!).

God has arranged our meeting (because He has!). 

It would be safe to say that people with remarkable memories developed them because of a driving need or desire. One of the keys that unlocks a person's soul is the realization that you are interested enough to call him or her by name. Let that be your driving force as you make the concerted effort to remember someone's name. 

Don’t worry if you don’t, I am poor at this! 

Reference:

Remembering Names, Part One, by Pastor Chuck Swindoll

(Excerpt taken from Come before Winter and Share My Hope by Charles R. Swindoll. Copyright © 1985, 1988, 1994 by Charles R. Swindoll, Inc. )

List Petronas?

Why not list the national oil corporation Petroleum Nasional Bhd or Petronas? That was the question posed by P. Gunasegaram in Malaysiakini on 21 February 2025. 

Saudi Arabia listed its wholly owned oil company, the world’s largest oil producer Saudi Aramco, in 2019, on its Tadawul exchange, by selling just 1.5 percent to investors and raising US$25.6 billion (RM113 billion at current exchange rates). 

Source: https://en.wikipedia.org

Its current market value is about US$1.8 trillion or RM8 trillion, among the most valuable companies in the world and its most profitable by far. Petronas could be valued at over RM1 trillion (US$226 billion) and will account for a third of Malaysia’s expanded market capitalisation if it is listed. It could raise funds of around RM50 billion for floating just five percent. Because it is a huge company, it will provide considerable depth and width to the local stock market and boost market liquidity. This is the seed capital for a sovereign wealth fund, beyond Khazanah 

Its listed status will ensure public scrutiny and timely disclosure of all relevant information to an investing public. But that is the key issue. Currently, only the PM know its true workings. Not the Cabinet, Parliament or PAC. 

Petronas is the only Fortune 500 Malaysian company, ranked 167 in terms of revenue. In 2023, it made a net profit of RM80.7 billion, a fifth down from 2022’s RM101.6 billion. Lower energy prices, higher costs and tax expenses as well as foreign exchange impact saw the national oil company posting a 32% or RM25.6bil drop in net profit to RM55.1bil for the financial year ended Dec 31, 2024 (FY24) compared with RM80.7bil in FY23. 

Revenue for the period fell by 7% on-year or RM23.6bil to RM320bil primarily due to discontinued operations impact of RM23bil, while softer energy prices were offset by higher sales volumes, the company noted in a statement yesterday. 

Will they do it? No. Why? It is the private “war chest” of the PM in power. There is always a good reason to keep it from public scrutiny, so it can rescue various parties when required!

 

References:

Comment | Why not list trillion ringgit Petronas?P. Gunasegaram, Malaysiakini, 21 February 2025

Petronas FY24 net profit at RM55bil, Bhupinder Singh, The Star, 26 February 2025

Semiconductor Industry: Prospects and Challenges

The semiconductor industry is key to the global technology sector, and its prospects are closely tied to advancements in various fields such as artificial intelligence, 5G, the Internet of Things (IoT), and electric vehicles (EVs). As for Malaysia, its role in this industry is significant, and its future may seem promising due to several factors:

1. Strategic Location

Malaysia is geographically well-positioned in Southeast Asia, providing easy access to major markets like China, India, and other ASEAN countries.

2. Established Ecosystem

The country has a well-established semiconductor manufacturing ecosystem, with a strong presence of multinational corporations and local players involved in various stages of the semiconductor supply chain, from wafer fabrication to assembly and testing. 

Source: https://commons.wikimedia.org

3. Skilled Workforce

Malaysia has been investing in education and training to develop a skilled workforce capable of supporting high-tech industries. This includes specialized programs in engineering and technology fields relevant to semiconductor manufacturing.

4. Government Support

The Malaysian government has been supportive of the semiconductor industry through various initiatives, including tax incentives, grants, and the development of specialized industrial parks like the Kulim Hi-Tech Park.

5. Diversification

Malaysia is looking to diversify its semiconductor industry by moving up the value chain. This includes efforts to attract investments in higher-value activities such as integrated circuit design and the manufacture of more sophisticated components.

6. Global Demand

The global demand for semiconductors is expected to continue growing, driven by the proliferation of smart devices, the expansion of IoT, and the transition to greener technologies. This bodes well for Malaysia's semiconductor industry.

7. Trade Agreements

Malaysia is part of various trade agreements that can benefit its semiconductor industry, such as the Regional Comprehensive Economic Partnership (RCEP), which can enhance trade flows and reduce tariffs among member countries.

8. Challenges

Despite the positive outlook, Malaysia faces challenges such as competition from other countries, the need for continuous technological innovation, and the impact of global economic fluctuations on the semiconductor market. 

Malaysia has been one of the largest exporters of semiconductor devices and integrated circuits. The semiconductor industry is one of the largest employers in Malaysia's electrical and electronics (E&E) sector. The global semiconductor industry has seen a CAGR of around 4-6% over the past decade, and Malaysia's growth has been somewhat aligned with global trends.

Looking ahead to 2030, several factors could influence the value, workforce size, and CAGR of Malaysia's semiconductor industry:

1. Industry Value

The value of the semiconductor industry is expected to grow as demand for semiconductors continues to rise with the expansion of 5G, AI, IoT, and EVs. Malaysia's industry value could potentially increase proportionally with global growth, which some estimates suggest could see the global semiconductor market reach over $1 trillion by 2030.

2. Number of Workers

The number of workers may not grow at the same rate as the industry's value due to automation and the adoption of more advanced manufacturing technologies. However, there will still be a need for skilled workers, particularly in high-value areas such as semiconductor design and R&D. 

3. CAGR

The CAGR for Malaysia's semiconductor industry could remain steady or increase if the country successfully moves up the value chain and captures more of the global market share in higher-value semiconductor activities. The CAGR will depend on Malaysia's ability to innovate, attract investment, and navigate global competition.

A lot of work needs to be done between MITI, the Association and various large market players. We have Vietnam, Taiwan, India and Singapore as our competitors, and they don’t have other peripheral issues to contend with!

Malaysia’s Education Investment Gone South?

Quality human capital investment equips individuals with relevant skills and knowledge, enabling them to drive industrial transformation, technological advancements, and business efficiency. At the macro level, human capital investment is commonly measured by the percentage of education expenditure to gross domestic product (GDP). This indicator reflects the commitment of public, private and international entities to investing in human capital development and is monitored as part of the sustainable development goals (SDGs).

Data from the Unesco Institute for Statistics shows that from 2011 to 2022, Malaysia allocated an average of 4.6% of its GDP to education, notably higher than Singapore and Japan, which allocated 2.8% and 3.3% respectively during the same period. On the other hand, the productivity levels per employee in 2022 were almost three times higher in Japan and almost five times higher in Singapore compared with Malaysia. That year, the productivity level in Malaysia was equivalent to US$22,947. In Japan it was US$67,677 and in Singapore it was a whopping US$114,597. Despite a marginal decline in 2023 to US$113,179, Singapore’s productivity rate was still 4.8 times that of Malaysia’s US$23,298. 

So, how can this higher education expenditure translate into improved productivity in Malaysia? 

A closer analysis of labour productivity trends in relation to education spending reveals an alarming situation that cannot be ignored. This is evident in the graphs below, which depict scatter plots illustrating the relationship between education expenditure and productivity growth in Malaysia, Singapore, and Japan from 2001 to 2022.

 In the case of Malaysia, the trend line suggests a negative correlation between education expenditure and productivity growth. Higher education expenditure does not appear to translate into productivity gains; in fact, there are instances of productivity decline despite increased spending.

In contrast, a clear positive correlation is observed for Singapore and Japan, suggesting that increased education spending tends to be associated with productivity growth. The spread of data points suggests that the relationship is not perfectly linear but generally indicates that investment in education contributes to productivity improvements. Singapore’s model seems to show that effective allocation of education funds leads to economic benefits. 

When education fails to contribute positively to productivity growth, it raises serious concerns about the efficiency and effectiveness of a country’s investment in human capital. Education is widely regarded as a key driver of economic progress, equipping individuals with the skills and knowledge necessary to enhance labour productivity and drive innovation. 

However, when increased education expenditure does not translate into measurable productivity gains, it suggests underlying inefficiencies in the education system, labour market mismatches, or structural economic challenges that hinder the effective utilisation of human capital. The negative correlation between education expenditure and productivity growth underscores the urgent need to reassess education policies. 

Rather than focus solely on increasing funding, policymakers must prioritise the quality of education and its alignment with market demands. A well-functioning education system should equip the workforce with relevant skills that drive innovation and economic efficiency. Without targeted reforms, continued investment in education without measurable productivity gains risks becoming a financial burden rather than a driver of sustainable economic growth. 

With half of the Budget, many can translate a better outcome! We are in denial; the Minister is in denial; PMX is in denial. 

First, please admit you have a problem. Second, sack the Minister of Education (I had hoped Elon Musk will come over and sack the whole MOE lot). Third, engage with all stakeholders. Fourth, devise a simple plan:

 

(i)                  Adopt a two-language policy in all national schools – Bahasa Malaysia and English (options with incentives for Mandarin and Tamil).

(ii)                    Emphasise maths and science not religious knowledge.

(iii)                  Engage competent headmasters.

(iv)                  Re-train and recruit teachers of all races.

(v)                    Re-visit curriculum and adapt from Singapore and Finland.

(vi)                  Collaborate with parents and “win-over” the students.

(vii)                Re-introduce exams at UPSR and PMR (or at least have UPSR).

(viii)               No more regrading/downgrading/special grading for weak students.

(ix)                  More vocational schools with industrial practice on-site; and

(x)                    “Audit” all facilities, headmasters, teachers and support staff annually. How? Use the District Education Officers.

That’s the plan. But key is implementation. And nothing will happen with this lot in power! Good luck Malaysia, you will suffer in 20-30 years from now if you don’t do anything! 

Reference:

Malaysia’s education investment is not paying off. What’s going wrong? Yusof Saari, FMT/Letter to the Editor, 21 Feb 2025

World Bank: Untaxed Capital Income!

The World Bank has identified untaxed capital income as a major weakness in Malaysia's tax system. This contributes to the country's low revenue collection despite a progressive personal income tax (PIT) structure. Capital income, derived from the ownership of assets or investments, includes dividends, interest, rental income, and capital gains. Malaysia's PIT structure has high chargeable income thresholds; low tax rates for upper-income brackets, and provides multiple tax reliefs given without an overall cap that reduces taxable income, and a narrow tax scope. 

Source:https://en.m.wikipedia.org

Malaysia’s heavy reliance on direct taxation is quite progressive. But capital incomes, which are highly concentrated and still constitute a high share of the national income, are not taxed, and direct taxation through personal income tax is low, at below 3% of GDP (gross domestic product)," World Bank said in their report. 

The PIT is also designed in a manner that places an inherent limit on its revenue capacity, and compromises the progressivity of the tax burden. The Bank suggested that addressing these issues, including the taxation of capital income, would broaden the tax base, primarily affecting higher-income earners, and consequently increase government revenue. 

World Bank had previously said in October 2023 that Malaysia's PIT revenue collection is limited — standing below 3% of GDP over the past decades, and below 2% in recent years — well below most high-income countries. In its latest report, the World Bank, using estimates from its own simulation model, suggested that reducing taxable income thresholds and applying higher rates to upper-income brackets could boost PIT revenue by RM2.5 billion to RM2.8 billion for the 2024 assessment year. Additionally, introducing a cap on overall relief claims could contribute an extra RM1.1 billion. 

The Ministry of Finance has projected that total government revenue would reach RM339.71 billion in 2025, up from a revised estimate of RM322.05 billion in 2024, driven by increased direct and indirect tax collection. While revenue has grown steadily since a near 15% decline in 2020, the revenue-to-GDP share is estimated to be 16.3% in 2025, slightly below 16.5% in 2024. This ratio has been below 18% since 2015, raising concerns about Malaysia’s increasing dependence on debt to fund its fiscal needs.   

An attractive feature of Malaysia’s tax structure is the untaxed capital income. It is better to leave this untouched. Why can’t the World Bank focus on other tax initiatives like a Tobin tax or widening the “excess profit or windfall tax”. I don’t know. My assessment is that the additional revenue from the initiatives suggested (Tobin or windfall) together with a revised PIT (as proposed by the World Bank) will generate sufficient revenue for development expenditure and avoid any new borrowings! 

Reference:

World Bank: Untaxed capital income, low tax rates for the upper income among key weaknesses in Malaysia's tax system, Yu Jien Lim & Syafiqah Salim, theedgemalaysia.com, 5 February 2025

Petronas: Survival in Question?

Since the enactment of the Petroleum Development Act 1974 (PDA), Malaysia's petroleum revenues have been a significant contributor to the country's economy. The PDA established Petronas (Petroliam Nasional Berhad) as the national oil company, granting it exclusive rights to explore, develop, and manage Malaysia's petroleum resources. Over the decades, petroleum revenues have played a crucial role in Malaysia's economic development, funding infrastructure projects, government expenditures, and national savings.

Petronas has been one of the largest contributors to Malaysia's federal revenue. On average, it has contributed 20-30% of total federal revenue annually, though this figure fluctuates depending on global oil prices and production levels. In recent years, Petronas’ contributions have ranged from RM50 billion to RM80 billion per year, depending on oil prices and production volumes. 

Source: https://en.wikipedia.org

Since its establishment in 1974, Petronas has generated trillions of ringgit in revenue from oil and gas production, exports, and related activities. For example, between 2010 and 2020 alone, Petronas contributed over RM800 billion to the federal government in the form of dividends, taxes, and royalties.

Malaysia's petroleum revenues are heavily influenced by global oil prices. For instance, during periods of high oil prices (e.g., the 2000s and early 2010s), revenues surged, while periods of low oil prices (e.g., 2014-2016 and 2020) led to significant declines. The COVID-19 pandemic in 2020 caused a sharp drop in oil prices, reducing Petronas’ revenues and contributions to the federal government.

Under the PDA, oil-producing states like Sarawak, Sabah, and Terengganu receive a 5% royalty on oil and gas production. This has been a point of contention, as states argue that the royalty is insufficient. The federal government retains the majority of petroleum revenues, which are used for national development, subsidies, and other expenditures.

In 2022, Petronas reported a record profit of RM101.3 billion, driven by high global oil prices following the Russia-Ukraine conflict. This resulted in a significant increase in contributions to the federal government. However, the long-term sustainability of petroleum revenues is a concern, as Malaysia's oil reserves are gradually depleting, and the global shift toward renewable energy could reduce demand for fossil fuels.

While exact figures are not publicly available, conservative estimates suggest that Petronas has contributed over RM2 trillion to Malaysia's federal revenue since 1974. This includes:

(i)              Dividends

Petronas has paid substantial dividends to the federal government, often exceeding RM20 billion annually in recent years.

 

(ii)            Taxes and Royalties

The company also pays corporate taxes, petroleum income tax, and royalties to the federal and state governments.

(iii)     Export Earnings

Malaysia is a major exporter of liquefied natural gas (LNG) and crude oil, generating significant foreign exchange earnings.

 

Meanwhile, Petronas intends to right size its workforce in view of an evolving and increasingly challenging global operating environment, according to its president and group CEO Tan Sri Tengku Muhammad Taufik. 

The number of jobs affected is not known yet, as the new structure will only be out in the second half of the year. Once the structure is out, certain employees will be redeployed to new roles while some will be displaced. The exercise is expected to be completed by end 2025. 

The exercise mainly aims to reduce the number of “enablers” — meaning those in administrative roles — whose ratio relative to the group’s workforce is above the industry average. There are currently 15,000 to 16,000 enablers in Petronas, as opposed to its global workforce of 52,000 to 53,000 people. 

Petronas is not the only oil company that is trimming its staff. International oil giants such as Shell and ExxonMobil have also implemented job cuts recently, hit by rising volatility and the long-term decline of oil prices, amid a global push for decarbonisation and green energy. (Petronas is facing the cessation of its gas aggregator role in Sarawak). 

Shell’s job cuts, announced in September 2024, involved 20% of its workforce in two subdivisions responsible for exploration. ExxonMobil expects to reduce nearly 400 jobs by 2026 as part of its operation integration. 

Petronas’ average cost per barrel is about US$50. Brent crude was trading at US$74 per barrel recently. On top of the long-term downward trend in oil price, market uncertainties include the possibility of lower-cost producer Russia supplying hydrocarbon to its allies, including Petronas’ clients, as well as the chance of a drilling bonanza in the US. 

For the six months ended June 30, 2024, Petronas booked a net profit of RM32.38 billion on revenue of RM156.9 bil­lion. Capital expenditure totalled RM25.72 billion. Its cash balance stood at RM217.44 billion as at end-June, against borrowings of RM114.59 billion, giving it a net cash position of RM102.85 billion. 

Unlike Norway, we don’t have a good sovereign wealth fund. Khazanah supposedly acts like one! And 1MDB was a joke! So, unless we save and invest in “safe” assets we will be like the U.K. or Nigeria – wasted opportunities! 

Reference:

Petronas rightsizing workforce to “ensure survival”, says group CEO, Adam Aziz and Kathy Fong, The Edge Malaysia, 18 February 2025

World Inflation at Risk?

As President Donald Trump threatens tariffs on the US’s trading partners, the worry of another inflation wave troubles global economists. Tariff wars are inflationary, that’s not up for debate. 

While China shows little sign of vulnerability to a price shock for now, the same can’t be said for the rest of the world if some spiral of tariffs unfolds. Multiple economies face latent inflation pressures, either domestic or external. 

In the US, a resilient labour market is keeping the Federal Reserve alert. Trump’s policies threaten to drive bond yields higher. Elsewhere, dollar strength is haunting emerging markets such as Indonesia. Eurozone consumer-price growth has been faster than expected. The Bank of England recently said they may be forced to raise its forecast for inflation. 

Trump’s arrival has added to pre-existing worries. Despite an International Monetary Fund official declaring (in October) that the battle against inflation was “almost won,” attendees at the World Economic Forum in Davos in January 2025 harboured open doubts. 

A Bank of America survey of global fund managers in January showed the re-emergence of global consumer-price growth as a key theme for 2025. The World Bank predicted slowing inflation but still warned that it “could prove to be more persistent than expected.” That chimes with markets. 

For the US in particular, analysts are openly starting to reassess inflation prospects. Morgan Stanley recently scrapped its forecast for a Fed interest-rate reduction in March. That followed Chair Jerome Powell’s remarks recently that officials aren’t in a rush to lower borrowing costs as policymakers pause easing to see further progress on inflation. The potential for increased tariffs complicates that outlook.

Across the Atlantic, the extent of any trade response is to be watched closely if Trump unleashes tariffs. For now, policymakers have downplayed them as a price driver in either direction. European Central Bank President Christine Lagarde has argued she isn’t “overly concerned” about imported inflation and BOE Governor Andrew Bailey has said tariff effects aren’t straightforward to predict. Euro-area inflation unexpectedly accelerated in January, while selling-price expectations rose to the highest level in almost a year for services, and the strongest in nearly two years in manufacturing. Consumers and professional forecasters are less sanguine than policymakers, raising their 2025 inflation outlook. And a Bloomberg poll showed a majority of economists is now more concerned about price pressures exceeding 2% in the medium term. 

What about Malaysia? Tariffs will raise headline inflation but we also have other issues like petrol subsidy rationalisation (RON95), electricity tariff hike and salary increases (for civil servants) to help inflation to 3.5% in 2025 (1.8% in 2024). 

What could we do? Raise interest rates? Defer electricity tariff hike? Defer subsidy rationalisation? Produce more food and essential items locally? We may need to set-up a reserve for the most vulnerable?  All of the above and many more! Remember, this time there is no savings left in EPF for contributors to dip into! 

Reference:

World inflation at risk of rekindling with Trump’s trade war, Jana Randow, Katia Dmitrieva and Enda Curran, Bloomberg, 6 February 2025

Trump’s Trade War: Ways Forward for Malaysia?

US President Donald Trump has fired several tariff shots. Currently, the only one in effect is the 10% tax on China imports. ASEAN countries, including Malaysia, are well-positioned to capitalise any trade diversion. Tariffs have become central to Trump’s economic and political strategy which ultimately raise costs for Americans. 

According to the Peterson Institute for International Economics (PIIE), tariffs from the 2018-2019 US-China trade war were passed on to US purchasers, effectively acting as a tax hike on US households. According to the analysis, Trump’s proposed tariffs would offset his tax cuts plans as bottom 60% of households would face financial setbacks due to higher tariff costs outweighing tax relief. 

During Trump’s first term (2017-2021), ASEAN nations, notably Vietnam, benefited from the US-China trade war due to trade diversion; Vietnam’s exports to the US grew at a compound annual growth rate (CAGR) of 15.9%. Malaysia also saw notable gains (CAGR: 4.6%). With Trump’s new 10% tariff on Chinese imports, similar trade shifts could reemerge, creating opportunities for export-driven Asian economies. 

Industries that could benefit further include: toys, sporting goods (66.5% US import dependency on China), and cell phones and appliances (57.3%). As such, ASEAN countries are again well-positioned to capitalise on this shift. 

President Trump has signed a memorandum calling for “fair and reciprocal” tariffs, directing a country-by-country review; this is aimed at addressing perceived trade imbalances. The overall tariff gap between the US and Malaysia is estimated at 2.3%, indicating no substantial imbalances. Although reciprocal tariffs could generate revenue for the US, the impact is limited, contributing just 0.2% of US gross domestic product (GDP) and only 0.002% from Malaysia. (This is HLIB’s analysis and views) 

Given his unpredictable trade stance, the risk of a blanket 10% universal tariff is not entirely off the table.

The US China trade war in 2018-2020 led to a notable decline in Chinese exports, underscoring the role of trade elasticities in shaping trade flows. 

HLIB’s analysis suggests 0.7/2.0 for lower/upper bound elasticity to access the potential impact on GDP. Hypothetically they say, if Trump impose a 10% global tariff and we utilise a lower trade elasticity of 0.7 is used, Malaysia could see a decline of 0.5% of GDP with the impact potentially rising to 1.6% of GDP over time if trade elasticity strengthens.

Countries with even higher exposure to US trade such as Vietnam, Taiwan and Thailand would likely experience a more pronounced impact. While global trade tariff measures pose potential risks to Malaysia’s economic outlook, the country is well-positioned to withstand these challenges. 

As such, HLIB Research maintains 2025 GDP growth at 4.9% (2024: 5.1%) driven by strong domestic demand drivers, particularly resilient household spending and implementation of public and private investments. This is further reinforced by higher civil wage hikes, an increase in the minimum wage, expanded cash transfers (2025:RM13 bil; 2024: RM10 bil), a robust labour market (December 2024: 3.1%) and a steady pipeline of investments benefiting from government’s incentives packages. 

These factors may serve as key buffers against external headwinds, thus ensuring that Malaysia remains on a stable growth trajectory despite the evolving global trade landscape. 

Reference:

The art of emerging winners from Trump’s trade war: Ways forward for Malaysia, Felicia Ling and Nurul Athira Salith, Focus Malaysia, 17 February 2025