Malaysia export-driven GDP risks rise as tariff pause nears expiry

The latest IPI and manufacturing sales data sharpen the contours of a policy dilemma that Malaysia’s growth planners can no longer sidestep. A 2.7% year-on-year IPI increase in April—beneath the previous year’s 3.2%—alongside a month-on-month contraction of 8%, reinforces that the Q1 GDP growth of 4.4% may represent the upper bound for 1H25.

The 90-day pause on reciprocal tariffs—expiring July 9—temporarily front-loaded export volumes to the US. But the underlying fragility remains unaddressed. A 24% reciprocal tariff awaits reinstatement unless July negotiations yield resolution. The US baseline 10% tariff remains active.

Malaysia’s exposure lies not in headline figures, but in composition and directionality. Export-oriented industries—despite a 6.4% annual rise in April—contracted over 10% on a monthly basis, suggesting the front-loaded shipments were tactical, not structural.

Electrical and electronics (E&E)—the country’s manufacturing backbone—saw annual sales growth slow to 9.8%, with month-on-month figures dipping 2.3%. A deeper concern lies in where that demand is anchored: US policy, not endogenous competitiveness, remains the key driver.

Domestic-market oriented industries now face dual drag: weaker external demand and the July 1 SST expansion. Six new services categories and luxury import tax hikes will add friction to internal demand cycles already pressured by cost-push inflation.

The policy toolkit appears constrained. Bank Negara Malaysia is unlikely to move aggressively on rates, having signaled inflation containment over stimulus. Fiscal authorities have limited room to offset SST dampening effects without risking deficit slippage.

No visible liquidity backstop is yet announced for vulnerable sectors, especially E&E or logistics. Budgetary space remains tight ahead of 2H25’s pre-election spending constraints.

While the ringgit has not seen panic flight, institutional hedging is increasing. Local funds are seen pivoting selectively into SGD and USD-denominated fixed income. Capital outflows are not yet pronounced, but allocators are reducing exposure to unhedged Malaysia-dependent earnings.

Sovereign funds and export finance institutions may need to step in as contingent capital providers if July negotiations collapse. The risk is not systemic exit—but a silent repricing of Malaysia as a less defensible export hub within the US-China recalibration cycle.

This inflection is not a manufacturing cycle issue—it’s a capital positioning one. Sovereign allocators must now price Malaysia not just on export upside, but on its structural dependence on tariff-exposed corridors.

The SST expansion will compress domestic multipliers. The unresolved tariff framework threatens external elasticity. This alignment of internal and external softening creates a risk corridor that capital cannot ignore.

What seems like a transitory slowdown may be the market’s quiet vote on Malaysia’s diminishing insulation from trade-linked volatility.