Malaysia’s Q1 GDP jumps 5%, faster than projected due to improved demand

Malaysia’s economy expanded by 5 per cent in the first quarter of this year, with economists believing that the growth momentum will be sustainable for the rest of 2022 as the country sees improved recovery in domestic and external demand.

The announcement by the central bank on Friday (May 13) exceeded the vast majority of forecasts by various analysts, which ranged between 3.3 per cent and 4.8 per cent for the first 3 months of 2022.

The first-quarter performance was significantly higher than the 3.6 per cent growth in the fourth quarter of last year and the 0.5 per cent decline in the first quarter of 2021. Bank Negara largely attributed it to improved domestic demand as economic activities have mostly returned to normal with the easing of Covid-19 measures.

Lee Heng Guie, executive director of the Associated Chinese Chambers of Commerce and Industry of Malaysia’s Socio-economic Research Centre, is upbeat on the continuation of the growth momentum in the coming months.

“My estimate (for 1Q2022 growth) was 4.8 per cent. I expect the second quarter will perform stronger due to various factors – the reopening of international borders, the increase of Malaysia’s minimum wage and the Hari Raya spending spree,” he told The Business Times.

Lai Heow Gran, president of the investment banking division at the Asia Pacific Investment Bank, believes that economic growth will also stay strong due to revenge consumption.

“The concerns about inflation are also being addressed by Bank Negara through (its recently announced) interest rate hike (to 2 per cent). This will help to stabilise the ringgit and a stronger currency will attract investors,” he said.

However, Lai noted that other countries in the region which are under inflationary pressure will also tighten their monetary policy soon. As such, the government will need to strengthen the country’s economic fundamentals in order to have a stronger ringgit.

Felicia Ling, an economist from Hong Leong Investment Bank, said the central bank’s surprise move to raise the benchmark interest rate is “a sign of economic expansion” and it will not derail the country’s growth. She expects Malaysia’s GDP to expand by 5.5 per cent for the whole of 2022.

With a strong start to the year and further support from reopening of international borders as well as the low-base effect that provides a fillip to growth, UOB Kay Hian Malaysia Research also projected Malaysia to grow by 5.5 per cent in 2022.

On Friday, Bank Negara maintained its 2022 economic growth forecast at between 5.3 per cent and 6.3 per cent, having downgraded it in March.

Speaking at a press conference on Friday, governor Nor Shamsiah Mohd Yunus said the central bank has already considered the ongoing Russia-Ukraine war in its estimates. She cited other downside risks such as the lockdowns in China to curb the spread of Covid-19, as well as prolonged disruptions to the global supply chain.

“Although the downside risks have risen on the global front, we are confident of our growth trajectory and we do not see a risk of any recession in Malaysia,” she said.

Headline inflation moderated to 2.2 per cent in the first quarter, from 3.2 per cent in 1Q2021. Core inflation, meanwhile, increased to 1.7 per cent, up from 0.8 per cent in the final quarter of 2021.

“In an environment of high input costs and improving demand, headline inflation is projected to average between 2.2 per cent and 3.2 per cent this year. Underlying inflation, as measured by core inflation, is also expected to trend higher during the year, averaging between 2.0 and 3.0 per cent,” said the central bank.