Malaysian economy grows more than expected, inflation risks cloud outlook
  • First-quarter GDP rose 4.2%, beating analyst expectations and early estimates of 3.9%.
  • First-quarter exports increased 2.2% after three consecutive quarters of declines
  • Central bank maintains 2024 growth forecast at 4-5%
  • Economic recovery may be short-lived, analysts say

KUALA LUMPUR (Reuters) – Malaysia’s economy grew faster than expected in the first quarter of 2024, helped by a recovery in household spending and exports, but some analysts said the recovery could be short-lived with price pressures expected to rise.

Central bank and government data showed on Friday that gross domestic product (GDP) grew 4.2% in the first quarter from a year earlier, beating a 3.9% forecast in a Reuters poll and by the government. Annual growth in the fourth quarter of 2023 was revised down slightly to 2.9%.

Exports grew 2.2 percent year-on-year in the first quarter after three consecutive quarters of contraction, Bank Negara Malaysia (BNM) and the Statistics Department said in a joint press conference.

“Exports are expected to improve this year, supported by sustained demand,” BNM Governor Abdul Rashid Ghafour said.

He said risks to growth included weaker-than-expected global economic growth, falling commodity prices and further escalation of geopolitical conflict.

The data showed Malaysia’s economy grew 1.4 percent quarter-on-quarter on a seasonally adjusted basis, picking up growth compared to a 1 percent contraction in the fourth quarter of last year.

The central bank maintained its economic growth forecast of 4-5% for 2024. Economic growth in 2023 is expected to be 3.7%, down sharply from a 22-year high of 8.7% in 2022.

Abdul Rasheed said BNM expects headline inflation to be between 2 percent and 3.5 percent this year, compared with 2.5 percent last year, taking into account plans to adjust subsidies and price controls.

Malaysia is looking to eliminate a wide range of subsidies to raise revenue and make aid more effective for low-income earners, but has yet to announce when reforms to diesel and RON95 fuel subsidies and other price control measures will take effect.

Analysts said consumer spending could be hit by rising costs, while the export recovery could slow amid weaker demand from the United States, a major trading partner.

“The possibility of an increase in the OPR cannot be completely ruled out,” said Bank Muamalat Malaysia’s chief economist Mohamed Afzanizam Abdul Rashid, referring to a possible increase in BNM’s benchmark overnight policy rate (MYINTR=ECI).open a new tab.

Sivan Tandon of Capital Economics said Malaysia’s economic growth was promising but unlikely to be sustained.

“Softening labor markets, tightening fiscal policy and weak external demand will all weigh on economic activity over the coming quarters,” Tandon said.

BNM has kept its policy rate unchanged since raising it by 25 basis points to 3.00% in May 2023. At its policy meeting last week, the central bank warned of inflation risks as it continued measures to support the weakening ringgit currency.

Governor Abdul Rashid said on Friday that monetary policy would remain supportive of the economy.

“Of course, some say our policies are strict, but that’s not the case at all,” he said.

(1 dollar = 4.6830 ringgits)

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Reporting by Daniel Azar and Rosanna Latif; Editing by John Mair, Subhranshu Sahu and Neil Flick

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