KUALA LUMPUR: Hong Leong Investment Bank Bhd (HLIB) Research has projected slightly slower growth for Malaysia next year on heightened external headwinds.
In its note today, the firm said growth will be underpinned by steady improvement in the labour market, income-boosting measures, continued tourism recovery, and execution of approved investments.
It expects Malaysia's gross domestic product (GDP) to grow by 4.9 per cent in 2025, a tad softer than 2024's 5.0 per cent.
The projection is well within Bank Negara Malaysia's guidance of 4.5 per cent and 5.5 per cent.
HLIB said while market volatility could heighten given Trump's presidential return, it expects a more nuanced approach on tariffs – in a targeted manner rather than blanket.
Last year, Malaysia accounted for only 2.5 per cent of US' trade deficit (ranked 12th), while the top five countries (China, Mexico, Vietnam, Germany and Canada) collectively made up 66 per cent.
HLIB Research's assumptions are based on the US Federal Reserve (Fed) continuing on with its rate cut cycle in 2025, albeit at a softer pace of 50 basis points cut, vs its official forecast of 100 basis points for the year.
It forecasts inflation to rise to 2.7 per cent year-on-year (YoY) in 2025, as opposed to 2024 estimate of 1.9 per cent), with potential upward pressure hinging on the timing of RON95 subsidy reforms, likely to be introduced in the second half of 2025.
"As the inflation uptick is supply side driven, alongside rising external risks from Trump's tariff plans, we expect BNM to stay pat on the overnight policy rate (OPR) at 3.0 per cent for 2025," HLIB said.
The firm said external headwinds aside, Malaysia is now on a sturdier ship with steady growth, subsidy reforms in motion, robust investment pipeline, and a more stable political climate.
"We feel that foreigners have yet to fully appreciate the country's ongoing rejuvenation given their continued underweight position on Malaysia, though now at a smaller quantum."
" The Fed's ongoing rate down-cycle should help risk appetite for emerging markets resurface, particularly in countries such as Malaysia that aren't in the tariff spotlight," it added.
It has a 1,740 points target for the FTSE Bursa Malaysia KLCI in 2025.