Malaysia’s economy exceeds expectations with 5.6% growth in first quarter

Malaysia‘s economy has experienced faster than anticipated growth in the first quarter, bolstered by solid domestic demand, causing the central bank to downplay the potential impact of a global slowdown on the country, which is reliant on exports. Gross domestic product increased by 5.6%, according to data from the central bank and the government, exceeding analysts’ forecasts of a 4.8% annual rise predicted in a Reuters poll. This marks a decrease from the growth of 7.1% recorded in the final quarter of 2022, which surpassed the previously announced 7.0% growth.

In comparison to the previous quarter’s 1.7% decline, seasonally adjusted growth saw a resurgence, reaching 0.9%. Improved labour market conditions, the ongoing progress of large infrastructure projects, and a boost in tourism are among the factors that have contributed to the increase in Malaysia’s quarterly growth, as BNM Governor Nor Shamsiah Mohd Yunus explained during a press conference. She commented that the country’s economy is no longer in a state of crisis and is, in fact, continuing to grow stronger. She added, “Risks to the growth outlook are fairly balanced, with downside risks emanating primarily from external factors.”

An impressive 8.7% surge has been recorded in Malaysia after the nation rebounded from the pandemic’s negative impact in 2022. However, the country’s export-oriented Southeast Asian economy is expected to be weighed down by a decline in global demand. Some analysts have forecasted that the actual growth experienced by Malaysia may fall short of the Bank Negara Malaysia’s (BNM) anticipated 4%-5% expansion in 2023.

Despite these concerns, according to the central bank, the economy remains on track to reach its growth estimate, thanks to the robustness of domestic demand. In comparison to the previous quarter’s 3.9%, headline inflation in the first quarter dropped to 3.6%, while Malaysia’s current account surplus fell significantly from a revised 27.5 billion ringgit to 4.3 billion ringgit (US$969.6 million). Nor Shamsiah said that inflation is expected to remain elevated but moderate throughout 2023. Central bank projections indicate that headline and core inflation will average between 2.8% and 3.8% this year, compared to 3.3% in 2022.

Referencing evolving global developments, the BNM Governor did not rule out the possibility of additional increases to the benchmark interest rate. She explained, “Any normalisations will depend on whether there will be any developments that will materially affect our assessment of the inflation and growth outlook.” After four consecutive rate hikes in 2022, she added that there was no indication of excessive tightening by the central bank.

Last week’s rate increase, which elevated borrowing costs to pre-pandemic levels, led some economists to believe that the central bank’s tightening cycle had come to an end. Both Capital Economics and Oxford Economics attributed their lower-than-consensus growth predictions of approximately 3% for Malaysia this year to weak external demand and rising interest rates. Shivaan Tandon, the Asia Economist at Capital Economics, remarked, “With headwinds to both domestic and external demand mounting, we continue to expect the economy to grow at a below-trend pace this year.” However, Bank Muamalat Malaysia Chief Economist Mohd Afzanizam Abdul Rashid argued that household spending should remain strong. He pointed to the central bank’s expectation that the economy will reach full employment this year and said, “The onus is on the domestic engine to provide the catalyst for growth,” reports Channel News Asia.