As Donald Trump begins his second term as President of the United States in January 2025, both Indonesia and Malaysia are bracing for significant economic challenges. Indonesia is projected to face a fiscal deficit of 2.53% of its GDP in 2025, following a lower-than-expected deficit of 2.29% for 2024, which was reported at 507.8 trillion rupiah (approximately US$31.38 billion). This figure is an improvement from earlier estimates of 2.7% of GDP for 2024. The government aims to keep the deficit under 3% of GDP, which will be crucial for maintaining fiscal health as it transitions to the new administration under President Prabowo Subianto, inaugurated in October 2024. [2308b98f]
In 2024, Indonesia's economy grew by 5.02% year-on-year, but the anticipated fiscal expansion in the U.S. under Trump's administration is raising inflationary expectations, which could lead to increased capital outflows from Indonesia. This situation poses risks for the country's economic stability as it seeks to maintain investor confidence. [1ccea591]
Meanwhile, BMI, a Fitch Solutions company, projects Malaysia's GDP growth at 5.0% for 2024, supported by robust investment and resilient consumption. However, GDP growth is expected to slow to 4.7% in 2025, aligning with pre-pandemic levels. Caroline Wong, a country risk analyst, highlights inflationary pressures from subsidy withdrawals, which could impact consumer spending. Notably, Malaysia's exports to the U.S. account for 11.4% of its GDP, and new tariffs under Trump's administration could affect this trade relationship. However, Wong notes that Trump's tariffs on China could benefit Malaysia, as Chinese companies may relocate investments to avoid these tariffs. [bd94ed31][cbbf4621]
Maybank Investment Bank has projected a GDP growth of 4.9% for Malaysia in 2025, with inflation expected to rise to 3.0%. Chief economist Suhaimi Ilias noted that while fuel subsidy rationalization could lead to a 40% increase in RON95 petrol prices, the impact on inflation would be limited due to a two-tier pricing system, which could restrict the Consumer Price Index (CPI) impact to just 0.3 percentage points. [4f6c9f8a]
Despite these challenges, the Indonesian government reported a revenue increase of 2.1% to 2,842.5 trillion rupiah, while total expenditure rose by 7.3% to 3,350.3 trillion rupiah. Planned expenditure for 2025 is set at 3,621.3 trillion rupiah. Notably, a planned increase in the Value Added Tax (VAT) was canceled, which will affect revenue projections moving forward. [2308b98f]
To address these challenges, Bank Indonesia is likely to consider cutting its policy rate to 5.75% to stimulate growth. The Indonesian rupiah is currently weakening, trading between Rp 15,800 to 16,200 against the US dollar, with forecasts suggesting it could drop to Rp 16,500 per dollar by the end of the year. [1ccea591]
In Malaysia, Bank Negara Malaysia is expected to maintain the overnight policy rate at 3% throughout 2025, as it navigates the inflationary pressures and economic uncertainties. [4f6c9f8a]
The FBM KLCI target has been set at 1,740 by the end of 2025, driven by sectors such as banking, consumer, and healthcare. Additionally, the US dollar/ringgit exchange rate is expected to peak at 4.70 by Q2 2025 before tapering to 4.45 later in the year. [4f6c9f8a]
Despite these hurdles, Indonesia aims to attract $30 billion in green investments and is targeting a renewable energy capacity of 75 GW by 2040. The digital economy is also projected to grow by 14% year-on-year, indicating potential areas for economic resilience amidst the challenges posed by external factors. [1ccea591]
To sustain this growth trajectory, both countries must simplify regulations and improve infrastructure, which are critical for maintaining investor confidence in a changing geopolitical landscape influenced by U.S. policies under Trump. [1ccea591]