ECONOMY: SUBSIDY RATIONALISATION AS A HALLMARK REFORM
Economically, Malaysia managed to keep domestic numbers stable while attracting record international investments. Improving GDP, inflation and jobs numbers point to a recovering economy amidst global uncertainty and decline. Notably, investments into artificial intelligence, semiconductors and data centres have been significant and will likely continue into 2025.
The main question in analysts’ minds in the coming year will be the petrol subsidy rationalisation, which was promised in the Budget 2025 to be implemented by mid-2025.
This is significant for several reasons. First, petrol subsidy rationalisation is generally a highly emotive issue, especially for an oil-producing country like Malaysia, which has long enjoyed low prices.
Second, the extent of the government’s reform commitments comes down to this issue – past governments have tried and reversed when faced with pushback.
Third, it is perhaps the last window for difficult reforms before the unity government enters into the “election cycle” of its final two years ahead of the next general election.
Though Mr Anwar has rolled back subsidies relating to diesel, electricity, and select food items, the petrol subsidy rationalisation is unlike any other, thus presenting an outsized challenge to his administration.
He has limited the scale by focusing only on the top 15 per cent of income earners, but there is no saying what impact this will have on the wider economy. If he passes this test, however, he would have achieved a feat that his predecessors could not.
As a trade-dependent economy, how Malaysia fares in a US-China trade war under Trump 2.0 depends on the depth and breadth of those tariffs. If tariffs increase by at least 10 per cent, then the reshoring to Malaysia, as it had in 2024, will accelerate as more firms search for geopolitically neutral and geographically strategic areas with long-term planning. However, if the breadth of tariffs is higher, i.e affecting more products, as it has semiconductor equipment and solar panels in Malaysia, then the net benefit might be lower.
