Malaysia’s Economy Exceeds Expectations with 5.6% Growth in Q1

Malaysia’s economic performance in the first quarter surpassed expectations, driven by robust domestic demand, as indicated by data from Bank Negara Malaysia (BNM) and the Statistics Department.

Gross domestic product (GDP) registered a growth of 5.6 percent, outpacing the 4.8 percent annual expansion forecast by analysts in a Reuters poll. This positive momentum follows the 7.1 percent growth in the fourth quarter of 2022, which was revised upward from the initially reported 7.0 percent.

Despite achieving a 22-year high of 8.7 percent growth in the previous year’s economic rebound from the pandemic, Malaysia’s export-oriented economy faces challenges from cooling global demand. BNM, however, remains optimistic, emphasizing that robust domestic demand will be a key driver of economic expansion throughout 2023. The central bank maintains its growth forecast for the year in the range of 4 percent to 5 percent.

The first-quarter expansion was supported by favorable labor market conditions, the continuation of major infrastructure projects, and a recovery in the tourism sector, according to BNM Governor Nor Shamsiah Mohd Yunus, who spoke at a press conference. She highlighted that the economy has moved beyond crisis mode and is gaining strength, acknowledging balanced risks to the growth outlook, primarily from external factors.

Nor Shamsiah also addressed inflation risks, emphasizing that the central bank did not rule out further normalization of its benchmark interest rate after a recent 25-basis-point hike. Some analysts had viewed the rate hike as a signal of the end of the tightening cycle. The decision on further normalization, according to Nor Shamsiah, will depend on developments that materially affect the assessment of inflation and growth outlook.

BNM anticipates a moderation in core and headline inflation but expects them to remain elevated in 2023. The central bank’s outlook forecasts headline inflation to average between 2.8 percent and 3.8 percent for the year, compared to the 3.3 percent recorded in 2022.

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