‘2025 Outlook, BRICS and Trump-nomics’

Thank you for inviting me to speak here today. I hope it’s not too late to wish everyone a Happy Chinese New Year. This Chinese New Year happened to coincide with the inauguration of President Trump, and as loud as the fireworks in my neighbourhood were this year, so were the fireworks in the global policy arena. A lot has taken place, giving us much to reflect upon and consider as these events will impact the outlook for the rest of the year. The past few months have been transformative for Malaysia, marked by remarkable achievements and milestones. However, the recent global developments do require us to reassess the global investment landscape, as well as Malaysia’s strategies in navigating these challenging uncertainties.

Outlook on the global economy

Let me begin with the global economic landscape. According to the latest IMF World Economic Outlook, global growth is expected to strengthen modestly to 3.3% in 2025. The US economy remains resilient, which helps offset weaker performances in other major economies. For our region, while China’s growth is anticipated to slow slightly, Asia remains on a steady growth path, bolstered by strong performances in Japan and key ASEAN economies.^[1]

On the inflation front, we are still broadly seeing continuing signs of disinflation globally. Labor market conditions are gradually easing and energy prices are expected to decline, contributing to a projected drop in global headline inflation to 4.2% in 2025, and further to 3.5% in 2026.^[2] A lower and more stable inflationary environment is a positive development, as it fosters economic activity and supports global investment flows.

Despite these encouraging developments, we must remain cautious of the many uncertainties that continue to shape the global landscape. The year ahead is expected to be marked by an interplay of policy, economic, and geopolitical factors. One notable development is the resilience of the US economy, with inflation declining more slowly than anticipated. This has created uncertainty around the timing and extent of monetary policy normalisation by the US Federal Reserve. With US interest rates likely to remain elevated for an extended period, the gap between US rates and those in other markets is expected to remain. This dynamic continues to make US dollar assets particularly attractive.

The return of Mr. Trump to the US presidency has already introduced heightened level of policy uncertainties, which could have far-reaching implications for the global economy and markets. Nonetheless, while his rhetoric and pronouncements trigger much anxiety and volatility, in particular for emerging markets, the real-world implications of his policies may be more nuanced.

On the positive side, Trump’s emphasis on deregulation and tax cuts could provide a boost to the US economy and create spillover effects for global markets. For instance, his policies aimed at expanding oil drilling and deregulating energy production could lower energy prices, boosting global growth while easing inflationary pressures. However, on the other side, his protectionist trade measures, particularly targeting key trading partners, could introduce uncertainties. Recent developments have already seen President Trump imposing or threatening tariffs on key partners, including China, Mexico, Canada and the European Union (EU). In response, China has retaliated with tariffs on select US products and the EU has vowed to deliver proportionate countermeasures against the US. These actions have further intensified trade tensions and amplified market volatility. At the same time, trade dynamics could also change with supply chain potentially being rerouted to benefit countries like Malaysia and Vietnam. That said, the situation remains highly fluid, and it may be difficult to draw conclusions for now. What is clear, however, is that the overall impact of Trump’s policies on global growth is likely to yield a mixed outcome.

Another notable development is the significant shift in the US’s approach to green agenda and renewable energy. In addition to accelerating oil production through deregulation, the US is withdrawing from the Paris Climate Agreement. This is a clear setback to international collaboration on climate goals and is likely to slow the global transition toward greener economies. Several major US banks and global asset managers have also withdrawn from net-zero initiatives. While it remains unclear whether this reflects a broader strategic shift within the financial sector, these developments do raise questions about the future momentum of the global climate agenda.

Uncertainties surrounding China’s economic growth outlook continue to be a key source of market volatility. Meanwhile, while geopolitical tensions in Europe and the Middle East may show signs of easing, new risks are emerging elsewhere. The convergence of these factors—policy shifts, climate agenda uncertainties, and evolving geopolitical risks—highlights the need for resilience and adaptability as economies navigate an increasingly volatile environment in 2025.

Outlook on the domestic economy

Despite external challenges, the Malaysian economy has demonstrated remarkable resilience. This underscores our ability to navigate global uncertainties. Growth for 2024 has turned out on the higher side of expectations at 5.1%, with a stronger outturn in investments, consumption and the external sector. Exports continued to benefit from strong external demand and positive spillovers from the global tech upcycle. Investment activities remained strong with Malaysia achieving a record level of approved investment in 2023. This positive momentum is set to continue, with approved investments rising by 10.7% year-on-year for the first nine months of 2024.

Looking ahead, our economy is projected to sustain this momentum, to grow between 4.5% to 5.5% this year,^[3] supported by a series of catalytic projects outlined in various national masterplans. These initiatives are designed to foster new industries and future-proof the nation’s growth. And we are beginning to see their impact, as evidenced by the recent wave of investments by leading global tech companies. These investments are positioning Malaysia as a key digital economy hub in ASEAN, unlocking new opportunities for innovation, job creation and growth of ancillary businesses.

The tourism sector has also rebounded strongly, with activity returning to pre-pandemic levels. Moving forward, we expect further improvements, driven by higher international travel demand, coupled with increased flight capacity. Key initiatives, such as Malaysia’s ASEAN 2025 Chairmanship and the upcoming Visit Malaysia 2026, are expected to provide additional momentum.

Complementing these prospects is the Government’s unwavering commitment to fiscal sustainability. Under the Public Finance and Fiscal Responsibility Act (FRA), the Government has set out medium-term goals include achieving a fiscal deficit of 3% of GDP and a debt-to-GDP ratio of below 60%. So far, the Government has successfully met its annual targets, ensuring steady progress toward these objectives. Recently, the Government reported a fiscal deficit of 4.1% for 2024, outperforming their target of 4.3% with net borrowings registering a marked decline from RM92.6 billion in 2023 to RM76.8 billion in 2024. This is a very encouraging progress. Furthermore, the transition from broad-based subsidies to targeted subsidies has yielded significant savings, enabling the reallocation of resources to address other pressing national priorities. These include implementing measures such as the Sumbangan Tunai Rahmah and Sumbangan Asas Rahmah to mitigate the impact of rising costs of living and the well-being of the rakyat.

Ringgit resilience and strength of domestic markets

The ringgit also had an impressive year in 2024, staging a remarkable recovery in the second half to become the best performing currency in the region. Notably, the ringgit defied the broad rally in the US Dollar Index (DXY) to become one of only two regional currencies to appreciate against the US dollar in 2024. Despite recent market volatility, the ringgit has shown modest strength year-to-date.

The main driver for the ringgit's performance has been the US Federal Reserve’s decision to begin its rate-cutting cycle. For now, the rate-cutting cycle is expected to continue into 2025, with the US Fed and all other G10 central banks, with the exception of Japan, continuing their policy normalisation efforts.

Secondly, the coordinated efforts by BNM and the Government played a crucial role in stabilising the ringgit. Initiatives such as encouraging GLICs and GLCs to repatriate and convert their foreign income were instrumental in stabilising the market. Additionally, engagements with corporates, importers and exporters, along with the introduction of the Qualified Resident Investor Programme, helped support market flows. These measures, combined with strategic interventions, have successfully reduced excessive volatility and restored confidence among investors and the public. Moving forward, we will continue these efforts while remaining vigilant and proactive to prevent undue fluctuations and ensure the orderly functioning of our financial markets.

Thirdly, the remarkable performance of the ringgit was a testament from the market that our economy is on track. This achievement was underpinned by our robust economic performance in 2024, with inflation levels remaining under control. Additionally, the Government’s structural reforms have laid a solid foundation for sustainable growth in years to come, reinforcing market confidence in ringgit’s resilience and long-term strength.

The resilience of the ringgit was supported by vibrant trading activities in the foreign exchange (FX) markets. In 2024, the average daily trading volume in the FX market reached USD17.6 billion, marking a double-digit percentage increase compared to the previous year. Similarly, our money and bond markets saw higher average daily trading volume of RM10.3 billion and RM4.7 billion in 2024, both higher than the previous year’s figures. These trends highlight the deepening of our market liquidity and the growing capacity for our financial markets to efficiently facilitate and absorb large transactions.

Our financial sector remains well-capitalised and is strategically positioned to support growth and investments. In 2024, business loans grew by 5.1%, providing strong support for economic growth. The year also saw a significant increase in both equity fundraising and corporate bond issuance. Bursa Malaysia achieved a major milestone with the highest number of IPO listings in 19 years. With a total of 55 IPOs launched and RM7.4 billion raised through these offerings, we ranked first among ASEAN exchanges and surpassed London’s IPO market in terms of the number of IPOs and total value raised in 2024. Corporate bond issuance surged to RM124 billion, up from RM118 billion the previous year, with sukuk continuing to hold the majority share of the outstanding debt capital market. These achievements highlight Malaysia’s ability to facilitate large-scale financing and growing confidence among issuers and investors in our financial markets.

Opportunities for 2025

Following a robust performance in 2024, Malaysia is poised to present numerous opportunities in 2025, particularly in the areas of Islamic finance and our strategic role as the ASEAN chair.

Islamic finance and sustainability

In Islamic finance, we continue to solidify our position as a global leader and international hub. Supported by a strong regulatory framework, advanced financial infrastructure and a highly skilled talent pool, Malaysia has created a conducive environment for Islamic financial markets and institutions to thrive. Malaysia retains its dominance in the global sukuk market, accounting for 48% of the total outstanding sukuk. This leadership extends to the broader financial services sector, where Islamic banking has achieved significant penetration, representing 46% of total financing. Our takaful industry has also experienced robust growth, with contributions nearly tripling over the past decade and now capturing almost a quarter of the total market share.

Despite these achievements, there remains substantial potential to further strengthen Malaysia’s position in Islamic finance.

For example, Malaysian Government Investment Issues (MGII) have long been recognised globally, being included in major bond indices such as the Markit iBoxx Asian Local Bond Index, Bloomberg Aggregate Bond Index, and JPMorgan Government Bond Index-EM as early as 2012. Another significant next step would be the potential inclusion of MGII in the FTSE World Government Bond Index, which would further elevate its global standing. We are optimistic about these developments and look forward to a favourable outcome that would reinforce Malaysia’s prominence in the global bond market.

The market for SRI sukuk has also shown encouraging growth, reaching RM11.9 billion in 2024, which is a notable increase since its first issuance in 2017. However, when we look at the bigger picture, SRI sukuk still represents less than 5% of the total sukuk market, indicating significant untapped potential. As Malaysia actively promotes sustainable projects, there is significant opportunity to harness the potential of SRI sukuk as a key financing tool.

ASEAN financial integration

Malaysia’s ASEAN chairmanship this year provides us with a unique opportunity to drive economic and financial integration across the region. In line with the ASEAN Chairmanship theme of ‘Inclusivity and Sustainability,’ financial sector initiatives will play a key role in supporting ASEAN’s post-2025 vision to be a future-ready economy. This includes a strong focus on sustainability and payment connectivity. In the area of sustainability, Malaysia aims to bolster regional efforts to develop tools and build capacity for a just and orderly transition. Key priorities include enhancing access to sustainable finance, supporting SMEs in their green transition, and mobilising funding for green and climate-related projects. On the payment connectivity front, we will prioritise initiatives to expand payment linkages and promote participation in instant payment systems across ASEAN.

Another area of particular interest is the increased use of local currencies for cross-border transactions. Malaysia is well-positioned to become a regional hub for currency trading and liquidity management. The groundwork for this has already been laid with the establishment of Local Currency Settlement Frameworks (LCSF) with the Bank of Thailand and Bank Indonesia, as well as various local currency initiatives with China. These frameworks enhance regional interbank connectivity and provide flexibility in foreign exchange rules, enabling participating banks to offer competitive services for businesses to settle transactions in local currencies. This helps businesses manage foreign exchange risks more effectively and strengthens the resilience of regional trade. For example, trades with China settled in local currencies have increased from 1% in 2009 to 28% in 2024. Similarly, around 11% to 19% of trades with Thailand and Indonesia are now settled in local currencies, up from around 4% to 6% in 2009. Malaysia can leverage its robust banking infrastructure and extensive network of Appointed Overseas Offices (AOO) to facilitate seamless cross-border transactions.

Conclusion

In conclusion, while the global economic landscape continues to evolve with its share of uncertainties, I am confident that Malaysia will continue to be resilient and well-positioned for sustained growth. Our robust fundamentals have not only bolstered investor confidence but also reinforced the strength of the ringgit and our financial markets. As we move forward into 2025, there are many opportunities Malaysia could offer, particularly in Islamic finance, sustainability, and ASEAN integration. By harnessing these prospects and remaining adaptable to global developments, Malaysia is poised to thrive, fostering a resilient, inclusive, and sustainable future for all.

^[1] Key ASEAN economies include Indonesia, Malaysia, Philippines, Singapore and Thailand, as per IMF’s definition of ASEAN-5.

^[2] As outlined in IMF World Economic Outlook forecast in January 2025.

^[3] As outlined in Belanjawan 2025.