Malaysia and Thailand face slower growth

[MALAYSIA] Malaysia and Thailand are facing lowered economic growth forecasts as the effects of the U.S.–China trade war ripple through Southeast Asia’s export-heavy economies. Economists now expect Malaysia’s GDP to grow just 4.1% in 2025, down from February’s 4.7% forecast and well below the 5.1% seen last year. According to DBS Bank economist Chua Han Teng, global trade tensions are squeezing Malaysia’s exports, though domestic demand remains relatively strong thanks to household spending and ongoing investment.

Thailand’s outlook has dimmed even more sharply, with economists now predicting 2.1% GDP growth in 2025, compared to February’s 2.8% estimate and last year’s 2.5% expansion. Krung Thai Bank’s Chamadanai Marknual highlights that Thailand will struggle in the next few quarters due to trade war impacts, weaker-than-expected tourism, and limited fiscal stimulus options. Thailand’s own National Economic and Social Development Council recently warned that growth could dip as low as 1.3% because of heavy household and corporate debt.

Both countries’ central banks are signaling possible policy shifts. Malaysia’s Bank Negara sees room to loosen monetary policy in the second half of the year to support growth, especially with inflation remaining in check. Meanwhile, Thailand faces more constraints, with its economy weighed down not just by external pressures but also internal financial vulnerabilities that limit the government’s ability to boost spending.

Implications for Business, Consumers, and Policy

For businesses, especially exporters in Malaysia and Thailand, the downshift in global trade is a warning to diversify markets and build resilience. Firms that rely heavily on U.S.-bound shipments or sectors sensitive to global demand, like electronics or automotive, will need to explore alternative growth strategies or risk prolonged stagnation.

Consumers may feel the pinch indirectly. While Malaysia’s domestic demand appears steady, slower economic growth can eventually dampen job creation, wage increases, and overall consumer confidence. In Thailand, the tourism sector’s underperformance could hurt employment in services and hospitality, sectors that support large parts of the workforce.

From a public policy angle, Malaysia’s relatively stable inflation gives its central bank more flexibility to lower interest rates and stimulate the economy. Thailand, however, has less fiscal wiggle room due to high debt levels, making it harder to cushion the downturn with government spending or aggressive monetary easing. Policymakers in both countries will need to balance short-term relief measures with long-term reforms to ensure sustainable growth.

What We Think

This is a pivotal moment for Southeast Asia’s rising economies, which have long thrived on export-led models. The trade war underscores how vulnerable they are to external shocks and highlights the urgency of rethinking growth strategies. While Malaysia may have more policy tools available right now, both nations will need to invest in domestic innovation, upskilling, and regional trade diversification to reduce dependence on volatile global markets.

What’s particularly striking is the asymmetry between Malaysia’s and Thailand’s ability to respond: Malaysia can cut rates, but Thailand faces fiscal handcuffs. This difference could widen the performance gap between the two over the next year. Moreover, the underperformance in tourism—a key Thai economic pillar—raises structural concerns beyond short-term trade tensions.

In our view, this period should serve as a wake-up call for policymakers to prioritize resilience over raw growth figures. As global headwinds persist, those economies that successfully pivot toward domestic and regional strengths will likely emerge stronger and more balanced in the years ahead.