Export diversification crucial for Malaysian manufacturers as US tariffs, China slowdown weigh, say economists

Export diversification crucial for Malaysian manufacturers as US tariffs, China slowdown weigh, say economists

04 Feb 2025

Malaysia’s export diversification is crucial as its manufacturing sector continues to face headwinds from subdued global growth prospects, geopolitical tensions and trade policy risks, economists said. 

TA Securities, in a note, cautioned that any slowdown in China’s trade flows could have indirect repercussions for Malaysia, given that China is one of its largest export destinations.

Moreover, the ongoing shift in global supply chains, coupled with geopolitical uncertainties, may introduce further volatility in trade performance, the house said. 

“Against this backdrop, Malaysia’s ability to diversify its export markets and enhance trade resilience will be crucial in sustaining economic growth targets for the year,” it added. 

The seasonally adjusted S&P Global Malaysia manufacturing purchasing managers index (PMI) edged up slightly month-on-month to 48.7 in January 2025, compared with 48.6 in December 2024, but marked the eighth consecutive month of output contraction on a year-on-year basis.

PublicInvest Research noted that subdued global growth prospects and escalating geopolitical tensions could weigh on export-oriented industries. Additionally, heightened uncertainty surrounding global trade policies — particularly in light of US President Donald Trump’s policy stance — may further pressure industrial activity.

“Despite these challenges, steady domestic consumption, fiscal measures supporting investment, and a gradual recovery in key trading partners may help mitigate external headwinds,” the house said in a note.

BIMB Securities, meanwhile, highlighted that Trump’s renewed trade war — especially tariffs on Mexico, Canada, and China — could negatively impact Malaysia’s export-driven industries, particularly those deeply integrated into China-centric supply chains. 

Sectors such as electronics, automotive components, and machinery, which rely heavily on cross-border supply networks, are especially vulnerable, the house said.

Nevertheless, it said Malaysia could benefit from the “China+1” strategy, as companies seek to diversify their production bases away from China. This could drive investment inflows into the country, strengthening its manufacturing capabilities and trade competitiveness, said the research house. 

“Despite ongoing challenges, Malaysia’s manufacturing sector has the potential for stabilisation in 2025, supported by sustained electronics exports and increased foreign direct investment under the China+1 strategy. Additionally, domestic policy support under Budget 2025 is expected to stimulate demand and provide a buffer against external headwinds,” said BIMB. 

Source: The Edge Malaysia