Malaysia’s GDP Growth Surprises as Recovery Accelerates


Malaysia’s economy grew faster than initially estimated in the first quarter, driven by private spending and a rebound in exports.

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(Bloomberg) — Malaysia’s economy grew faster than initially estimated in the first quarter, driven by private spending and a rebound in exports.

Gross domestic product expanded 4.2% in the January-March period, according to Malaysia’s central bank and statistics department in a joint briefing Friday. That’s higher than the 3.9% advance estimate as well as the median forecast in a Bloomberg survey. On a sequential basis, the economy grew 1.4% from the previous three months.

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While strong services sector and manufacturing output helped drive the economy, a better than previously expected out-turn in farm and construction segments contributed to lifting overall growth.

Forward-looking indicators point to continued growth for the Malaysian economy, Bank Negara Malaysia Governor Abdul Rasheed Ghaffour said at a briefing in Kuala Lumpur. He expects consumer spending to improve, aided by higher income levels, sound balance sheets and support from the government.

Malaysia’s economic outlook for 2024 looks brighter after tepid global demand caused growth to moderate last year. A sustained recovery in China — its largest trading partner — could help the Southeast Asian nation’s manufacturing sector and boost tourist arrivals as well as investment. Bank Negara Malaysia expects GDP to expand between 4% and 5% this year on improving external demand.

The risk of slowing domestic spending, a key growth driver, also looks to be fading. Prime Minister Anwar Ibrahim indicated on Tuesday signaled he was in no rush to cut fuel subsidies on concerns it would spur price pressures and strain consumption. The central bank anticipates that inflation, which had been below 2% since September, may average as much as 3.5% this year should subsidies be phased out.

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The inflation forecast is based on the assumption that the government will unwind the fuel subsidies in a “gradual and sequential” manner, Abdul Rasheed said. In the short term, the subsidy reforms may impact consumption and investment, though this will be mitigated by the government’s targeted assistance. Beyond that, the subsidy reforms will be positive for the country: household spending would be more fuel efficient, and it would encourage corporates to invest in green energy, according to the governor. 

The first-quarter report suggests that Malaysia’s economic expansion is set to accelerate to 4.2% this year, from 3.7% in 2023, according to Oversea-Chinese Banking Corp.

“Resilient growth prospects amid benign inflationary pressures will allow Bank Negara Malaysia to keep its policy rate unchanged in 2024,” said Lavanya Venkateswaran, a senior Asean economist at Oversea-Chinese Banking in Singapore. “The key risk to our forecasts is from the timing and mechanism regarding the introduction of targeted fuel subsidies.” 

Malaysia’s central bank has been encouraging state-linked firms and investment funds, as well as private companies and exporters, to repatriate foreign investment income and convert it into the local currency to buoy the ringgit, after it slid to a 26-year low in February. 

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The coordinated moves have led to more consistent flows into Malaysia’s foreign-exchange market and helped cushion the pressure on the ringgit, Bank Negara said. The daily average foreign-exchange market trading volume rose to $17.6 billion from Feb. 26 through May 15, compared with $15 billion in the preceding period this year, according to the central bank.

The ringgit is among the best performers in Asia this month even as expectations grow that the US Federal Reserve may keep borrowing costs elevated for longer. The ringgit was little changed at 4.6845 against the dollar as of 12:43 p.m. in Kuala Lumpur on Friday, holding a 1.2% gain from this week. 

—With assistance from Tomoko Sato, Kok Leong Chan, Joy Lee, Marcus Wong and Kevin Varley.

(Updates with comments by central bank and Oversea-Chinese Banking economist starting in seventh paragraph.)

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