KUALA LUMPUR: Malaysia's economy is expected to outperform in 2025 with 4.7 percent gross domestic product (GDP) growth driven by a robust labor market and strengthening investment, according to the Mastercard Economics Institute (MEI) annual economic outlook 2025.
MEI said a key driver is projected to be private consumption as household purchasing power improves, propelled by better quality and higher paying employment.
"This is particularly within the higher skilled white collar services sub-sectors," it said in a statement.
Additionally, MEI also forecast continued growth for Asia Pacific (APAC) aligned with 2024 levels, while lower inflation and easing interest rates are set to provide relief to consumers and households.
It said this is largely in line with broader economic trends, as the global economy is expected to see 3.2 percent growth following a pace of 3.1 percent in 2024.
"If 2024 was about 'getting back to normal', 2025 is about normalization as volatility subsides and easing monetary policy allows consumers to benefit from economic growth.
"However, policy decisions like potential interest rate rises in Japan or US tariffs could significantly impact this growth. Businesses should leverage consumer optimism while preparing for potential trade disruptions," said Mastercard Asia Pacific chief economist David Mann
As the disinflationary environment eases the burden on consumers, MEI forecasts that APAC will see tight labor markets and a catch-up of inflation-adjusted wages, which is expected to contribute to increased spending—especially on discretionary items, including big-ticket purchases such as electronics, furniture and appliances.
While some of the pent-up demand for experience spending has subsided, it said consumers are still prioritizing big-ticket moments, such as major concerts and events.
Meanwhile, MEI said travel in APAC is expected to remain robust, though total passenger numbers in mid-2024 were still 12 percent short of 2019 levels.
It noted that some of this shortfall is the result of outbound travel from Northeast Asia—particularly the Chinese Mainland and Japan—having yet to recover to pre-pandemic levels.
"Even though consumers are set to spend in 2025, there are some caveats.For essential purchases without substitutes, increased prices are unlikely to affect sales.
"However, where alternatives exist, consumers may opt for more affordable versions of goods and experiences. This budget-conscious behavior may reflect residual caution after years of economic uncertainty and an attempt to balance a higher, yet relatively stable, cost of living," Mann added.