Malaysia's economy grows faster than expected

Inflation risks cloud outlook

FE Team | Published: May 18, 2024 21:41:57

KUALA LUMPUR, May 18 (Reuters): Malaysia's economy grew faster than expected in the first quarter of 2024, helped by household spending and a turnaround in exports, though some analysts said the rebound could be short-lived with price pressures set to increase.
Gross domestic product rose 4.2 per cent in the January-March period from a year earlier, central bank and government data showed on Friday, surpassing the 3.9 per cent growth forecast by a Reuters poll and advance estimates released by the government. Annual growth in the final quarter of 2023 was revised down slightly to 2.9 per cent.
Exports rose 2.2 per cent on an annual basis in the first quarter, after three consecutive quarters of contraction, Bank Negara Malaysia (BNM) and the Statistics Department said at a joint press conference.
"Exports are expected to improve for the year... supported by sustained demand," BNM Governor Abdul Rasheed Ghaffour said.
Risks to expansion include weaker-than-expected global growth, lower commodity prices, and further escalation of geopolitical conflicts, he said.
On a quarter-on-quarter seasonally adjusted basis, the Malaysian economy grew 1.4 per cent, compared with a 1 per cent contraction in the fourth quarter of last year, the data showed.
The central bank maintained its 2024 economic growth projection of 4 per cent to 5 per cent. The economy expanded 3.7 per cent in 2023, a sharp drop from a 22-year high of 8.7 per cent in 2022.
BNM projects headline inflation at 2 per cent to 3.5 per cent for the year, taking into account planned subsidy and price control adjustments, Abdul Rasheed said. Last year, it was 2.5 per cent.
Malaysia is seeking to do away with broad-based subsidies as it looks to boost revenue and better channel aid to lower-income groups. However, it has yet to announce when it would implement reforms to diesel and RON95 fuel subsidies and other price control measures.
Analysts said consumer spending could be affected by rising costs, while the recovery in exports may slow down amid weaker demand from the United States, a major trade partner.
"The possibility of higher OPR is something that we can't totally rule out," Mohd Afzanizam Abdul Rashid, chief economist at Bank Muamalat Malaysia said, referring to a potential rise in the overnight policy rate, BNM's benchmark interest rate.
Shivaan Tandon of Capital Economics said Malaysia's economic growth was encouraging but unlikely to be sustained.
"The softening labour market, tighter fiscal policy and soft foreign demand are all likely to weigh on economic activity in the coming quarters," Tandon said.
BNM has held its policy rates steady since May 2023, when it was raised by 25 basis points to 3.00 per cent. At last week's policy meeting the central bank flagged inflation risks as it continued measures to shore up the weakened ringgit currency.
On Friday, Abdul Rasheed said monetary policy remained supportive of the economy.
"Of course, some are of the view that our policy is tight, but this is certainly not the case," he said.