KUALA LUMPUR – Malaysia’s economy could be hit hard if the United States continues imposing high tariffs, with gross domestic product (GDP) growth in Southeast Asia possibly slowing to just 1.5% by 2026, warns Bloomberg Southeast Asia economist Dr Tamara Mast Henderson.
She said the Asean-5 – made up of Malaysia, Indonesia, the Philippines, Singapore and Thailand – is expected to record an economic growth of 4.5% this year. However, that momentum could slow to 3% next year, and drop even further by 2026 (1.5%), if the negative effects of US trade policies continue to spread.
“These include reduced investment flows, weakening exports and declining business confidence,” Henderson said, as quoted in a note by CIMB Securities on Wednesday.
She explained that the main drag in 2025 is expected to come from falling investment, more than trade. The US effort to shift manufacturing back home is also pulling capital away from Southeast Asia.
“This re-shoring push will likely ‘suck up’ capital that would otherwise have gone to developing Asian markets, creating tough competition for remaining FDI (foreign direct investment),” she said.
Malaysia, in particular, could be badly affected. Henderson said the country is “in a precarious position”, with 7.5% of its GDP coming from exports to the US, and overall exports making up more than two-thirds of its economy.
“The country faces a 25% tariff,” she said, adding that Malaysia’s close links with China – through multiple MoUs and involvement in BRICS-related initiatives – make it unlikely these tariffs will be reduced.
Adding to the pressure is Malaysia’s declining oil production, which, along with weaker global oil prices, could further hurt government revenue and limit its ability to support the economy.
Henderson also flagged Malaysia’s key export sector — electrical equipment — as “particularly vulnerable”.
She expects Malaysia’s GDP growth to slip below 4% in 2025, and warned it could fall even lower in 2026 if the tariffs stay in place.
As for the US, Henderson said it too will feel the impact. The higher tariffs are expected to raise production costs and slow demand at home.
“It will limit the Federal Reserve’s ability to cut interest rates in the short term, creating a difficult macro policy environment,” she said. – July 17, 2025