Malaysia’s economy grew faster than expected in Q1 on strong domestic demand

Kuala Lumpur – Malaysia’s economic growth beat expectations in the first quarter of the year, with strong domestic demand justifying the central bank’s latest move to push borrowing costs back to pre-pandemic levels.

Gross domestic product for the January-March period expanded 5.6 percent from a year ago, data from Bank Negara Malaysia (BNM) and the Department of Statistics showed on Friday. That’s faster than the average estimate of 5.1 percent growth in a Bloomberg survey. On a quarterly basis, GDP returned to positive territory at 0.9 percent.

The economy’s resilience in the face of a global recession confirms the central bank’s dramatic resumption of policy tightening last week to manage inflationary pressures. Growth is in line with the official forecast of 4 percent to 5 percent this year amid a challenging global outlook.

An increase in the benchmark interest rate will keep inflation under control while the economy grows, BNM’s statement said. The central bank has kept its rate moves gradual and measured, while signaling future action depends on growth and inflation data.

„The economy is no longer in crisis and in fact continues to strengthen,” BNM Governor Nor Shamsia Yunus told reporters in Kuala Lumpur. „It is necessary and warrants a policy review to ensure we continue on a sustainable growth path.”

Private consumption, along with ongoing major infrastructure projects, are poised to remain Malaysia’s key growth drivers, offsetting the impact of moderating exports. Business activity in Malaysia continues to grow, with the unemployment rate falling to a three-year low for the second month in a row in March.

Risks to growth remain outside, such as weaker-than-expected global growth and more volatile global financial market conditions. Outbound exports in March contracted for the first time in 31 months.

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The central bank reaffirmed its 2023 inflation forecast, with price gains seen averaging 2.8 percent to 3.8 percent.

The inflation forecast includes rationalization of further subsidy, including on fuel and electricity. Officials have cited higher global commodity prices due to geopolitical tensions and adverse weather events, while weak global growth and tepid demand are downside risks. Bloomberg

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