Summary

• Global economic growth is expected to sustain its pace in 2025. The US economy is projected to expand by 2.1% in 2025, supported by the services sector. The US-China trade war poses risks to global growth although implementation of tariff hikes could lag, while complex and diversified trade networks may mitigate these risks.
• On the other hand, the eurozone and China face challenges in economic growth. In the eurozone, Germany is experiencing sluggish economic activity, a key barometer for economies in the region. Meanwhile, China’s muted domestic demand stems from slower income growth and the weak property market.
• Malaysia’s economy is set to grow at 5.0% in 2025. Stronger gross domestic product (GDP) growth could emanate from faster implementation of projects under multiple national development blueprints, coupled with continuous external demand for the key export of electrical and electronic (E&E) products.
• While Malaysia’s inflation rate remained relatively mild in 2024, we note some possible upside risks in 2025. We expect inflation to rise to 2.6% in 2025 from slightly below 2.0% in 2024, given the effects of subsidy rationalisation for RON95, wage hikes, and a widener scope for the Sales and Services Tax (SST). Contained inflation and strong growth suggest flexibility to maintain the Overnight Policy Rate, unchanged at 3% in 2025.