By Rozanna Latiff
KUALA LUMPUR (Reuters) -Malaysia’s economy grew faster than expected in the first quarter buoyed by firm domestic demand, spurring the central bank to downplay fears of a global slowdown hitting the export-dependent country.
Gross domestic product rose 5.6%, according to central bank and government data, faster than the 4.8% annual expansion forecast by analysts in a Reuters poll.
That was down from growth of 7.1% in the fourth quarter of 2022, revised from a previously announced 7.0%.
However on a quarter-to-quarter basis, seasonally adjusted growth rebounded to 0.9% from a 1.7% decline in the previous three-month period.
Malaysia’s quarterly growth was supported by improved labour market conditions, a continuation of large infrastructure projects and a recovery in tourism, BNM Governor Nor Shamsiah Mohd Yunus told a press conference.
“The economy is no longer in crisis and in fact, continues to gain strength,” she said. “Risks to the growth outlook are fairly balanced, with downside risks emanating primarily from external factors.”
Growth hit a 22-year high of 8.7% last year as Malaysia bounced back from a pandemic slump.
But cooling global demand is expected to weigh on the outlook for the export-oriented Southeast Asian economy, with some analysts predicting growth could fall short of the Bank Negara Malaysia’s (BNM) forecast for a 4%-5% expansion in 2023.
The central bank said the economy is on track to achieve its growth estimate, underpinned by robust domestic demand.
Headline inflation in the first quarter slowed to 3.6% from 3.9% in the previous quarter, while Malaysia’s current account surplus narrowed sharply to 4.3 billion ringgit ($969.6 million) from a revised 27.5 billion ringgit.
Inflation was seen moderating but remaining elevated through 2023, with strong domestic demand and possible changes to Malaysia’s subsidy policies potentially driving prices higher, Nor Shamsiah said.
BNM expects headline and core inflation to average between 2.8% and 3.8% this year, compared with 3.3% in 2022.
Nor Shamsiah did not discount the possibility of further increases in the benchmark interest rate after the central bank’s surprise 25-basis-point hike last week, citing evolving global developments.
“Any normalisations will depend on whether there will be any developments that will materially affect our assessment of the inflation and growth outlook,” Nor Shamsiah said, adding that the central bank had not seen any sign that tightening had been excessive after four consecutive rate hikes in 2022.
Some economists had seen last week’s rate increase – which marked the return of borrowing costs to pre-pandemic levels – as signalling the end of the central bank’s tightening cycle.
Capital Economics and Oxford Economics said higher interest rates and weak external demand could drag on the economy, with both estimating lower-than-consensus growth of about 3% for Malaysia this year.
“With headwinds to both domestic and external demand mounting, we continue to expect the economy to grow at a below-trend pace this year,” Capital Economics Asia economist Shivaan Tandon said in a note.
Bank Muamalat Malaysia chief economist Mohd Afzanizam Abdul Rashid however said household spending should remain strong, with the central bank expecting the economy to reach full employment this year, he said.
“The onus is on the domestic engine to provide the catalyst for growth,” he told Reuters.
($1 = 4.4350 ringgit)
(Reporting by Rozanna Latiff and Mei Mei Chu; Editing by Martin Petty and Sonali Paul)
