Malaysia to See Higher Downside Risks in 2025 from Trump Tariff Uncertainties

Malaysia's trade outlook for next year is subject to higher downside risks with uncertainty mainly from incoming Trump administration's trade and tariff policies and retaliatory action by trading partners, according to UOB Global Economics & Markets Research.

The firm said this after acknowledging that Malaysia's October exports came in above its expectations.

UOB Research said the uncertainty around Trump's trade and tariff policies lie in the extent of actual tariffs, timing of tariffs, and potential tit-for-tat actions from other key trading partners.

"The magnitude of impact is difficult to ascertain at this juncture albeit we cannot underestimate the odds that tariffs will be higher with differences in sectoral outcomes and differentiated between economies," it said.

UOB Research said the impact is expected to be broad-based across the region especially if China is significantly affected.

It said higher US demand could offset the impact, given that the potential tariff changes could still favour a lower tariff from non-China trade partners.

Front-loading of exports ahead of Trump's proposed tariffs could also help trade.

"There are also enhanced buffers from trade diversification and supply chain configurations while regional investment and construction activity lends another supportive channel," it said.

Regional exports to both China and US are almost equal, averaging 15.7 per cent-15.8 per cent of total exports.

Meanwhile, UOB Research said gross exports turned around to grow by a marginal 1.6 per cent year-on-year (yoy) in October (September: -0.3 per cent), defying its estimate of a 2.0 per cent decline, but undershooting Bloomberg consensus' 2.5 per cent gain.

Import growth continued to lose momentum to an 11-month low of 2.6 per cent (September: +10.9 per cent).

This resulted in a narrower trade surplus of RM12 billion in October (September: RM12.8 billion).

UOB Research said the small improvement in October exports was primarily driven by increased shipments of manufactured goods (particularly electronics & electrical, rubber products and processed food) and agriculture goods.

Strong demand from the US, European Union, Taiwan, Singapore and Indonesia helped to cushion the contraction in exports to China, Hong Kong SAR, South Korea and Japan.

Pending for more clarity on US policies, UOB Research maintains its export outlook of 7.6 per cent growth for this year (MOF est: 5.6 per cent) and a 4.5 per cent gain for 2025 (MOF est: 3.9 per cent).