Reform deferred, populist push adds fiscal strain
SUMMARY:
- The government latest measures are not a conventional fiscal stimulus but a redistribution of recent macro gains (stronger ringgit, stable inflation) to support domestic demand and ease cost-of-living pressures. While politically popular, they heighten the tension between near-term social spending and medium-term fiscal discipline.
- Malaysia’s Economy: Targeted fiscal measures, including cash transfers and targeted fuel subsidies, are set to boost private consumption in 2H25, helping offset external trade risks due to high tariff impact, and reaffirmed our GDP growth target at 4.3% (2024: 5.1%).
- Headline Inflation: Fuel subsidy reform is finally set for rollout in 4Q25, but in a surprising twist, most consumers will enjoy cheaper RON95 petrol. Inflation is now expected to average 1.7% in 2025, down from our earlier forecast of 2.0%. Fiscal trade-offs loom as relief outweighs reform, with SST on fuels a possible offset.
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