KUALA LUMPUR (Feb 17): Malaysia’s current account (CA) surplus is projected to grow in 2025, driven by continued robust exports and a resurgence in tourism.

Kenanga Investment Research (KIB) forecasted the surplus to reach 1.9% of GDP, up from 1.7% in 2024, with exports continuing to outpace imports despite Trump’s tariff threats, and strong tourism receipts that may push the services account into surplus, it said in a note on Monday.

The global technology upcycle and sustained demand for AI-related products will also support a favourable outlook for Malaysia’s export-driven industries, KIB said.

“Meanwhile, despite falling short of the 2024 tourist arrival target of 27.3 million (actual: 25 million), 2025 arrivals are projected to climb to 31 million in 2025, ahead of Visit Malaysia Year 2026. A shift from a services deficit to a surplus, along with stronger goods surplus, is set to bolster the CA balance,” it added.

CIMB Securities, likewise, expects the country’s CA surplus to further recover, albeit at a stronger pace — to RM41.3 billion or 2% of the GDP in 2025, with the global trade recovery and tech upcycle expected to continue supporting electrical and electronics exports, it said in a separate note, with strong tourist arrivals and higher travel receipts bolstering the services account.

CA surplus jumped to RM11.4 billion or 2.3% of gross domestic product (GDP) in the fourth quarter of 2024 — the highest in three quarters — from RM2.2 billion (0.4% of GDP) in the previous quarter, based on the latest official figures released by Bank Negara Malaysia on Friday.

This was driven by goods surplus, which reached RM37.4 billion, the highest in seven quarters, supported by a 1.7% quarter-on-quarter (q-o-q) increase in exports and a 3.5% q-o-q decline in imports. Services account deficit also narrowed to its smallest since 3Q2011, to -RM0.1b from 3Q2024’s -RM1.6 billion, largely driven by a reduction in the deficit for intellectual property charges (-RM1.9b; 3Q2024: -RM3.0b) and a stable travel account surplus (RM11.2b; 3Q2024: RM11.0b) — reflecting stronger tourist spending.

This revival of tourism played a key role in Malaysia’s CA surplus and helped offset the widening deficits in both the primary and secondary income accounts.

Primary income deficit widened to RM20.2 billion in 4Q2024 from RM17 billion in 3Q2024, owing to higher repatriation of investment income by foreign investors back to their home countries, while secondary income deficit rose to RM 5.7 billion in 4Q2024 from RM2.4 billion in 3Q2024, amid higher transfers by foreign workers in Malaysia.

Downside risks from major economies’ trade policies
But downside risks persist, both research houses noted, stemming from uncertainty surrounding major economies trade policies amid a potential trade war. There is also supply chain restructuring, as well as volatility in international commodity prices, said CIMB.

“The ringgit has held within the 4.40-4.50 range against the US dollar for the past three weeks, defying our earlier projections of a weaker trajectory,” noted KIB.

“While delayed reciprocal tariffs offer temporary relief, their expected implementation, as soon as April 2, could sustain demand for the greenback as a safe haven, limiting the ringgit’s upside in the near term,” it added.

Meanwhile, resilient domestic demand, fuelled by broad-based salary increases, may lead to higher imports of intermediate and capital goods, potentially tempering the overall surplus, said KIB.

CGS International also expects the recovery in tourism receipts to remain supportive of Malaysia’s CA surplus in 2025.

But CGS sees the surplus easing to 1.5% of GDP, as it anticipates the potential impact of Trump’s tariffs to weigh on shipments in the second half of 2025.

“We project Malaysia’s shipments to moderate in the latter part of 2025, as the impact of Trump’s tariffs is likely to be seen over a period of several quarters amid global uncertainties and supply chain readjustments,” CGS said in a note last Friday.

“To date, Trump has announced tariffs on Mexico, China and Canada, effective Feb 4, 2025, as well as 25% tariffs on steel and aluminium imports effective March 4, 2025. We expect there will be more tariffs following an increase in US trade deficit balance in 2024 reported in early February.

“Nonetheless, there could be a potential upside from better shipments if the global supply chain restructuring favours Malaysia. Malaysia’s January 2025 trade numbers will be released on Feb 20, and we believe growth may remain strong. Overall, we project exports to expand by 3.0% y-o-y in 2025,” CGS added.