Image credit: Malay Mail
KUALA LUMPUR: Malaysia's economy grew faster than expected in the first quarter on recovering demand as the country's central bank remains optimistic of improved performance this year.
Economists said the 5.0 per cent expansion in gross domestic product (GDP) during the first three months put Bank Negara Malaysia's full-year growth projection of between 5.3 per cent and 6.3 per cent within reach.
Bank Negara governor Tan Sri Nor Shamsiah remains confident that the domestic economy would improve further this year.
"This is underpinned by stronger domestic demand, continued expansion in external demand, and further improvement in the labour market.
"Growth would also benefit from the easing of restrictions, reopening of international borders and implementation of investment projects," she said during a press conference on the interim GDP growth briefing here today.
The 5.0 per cent came in faster than the four per cent forecast by a Reuters poll of 18 economists and up from 3.6 per cent expansion in the previous quarter, with the main sources of growth coming from domestic demand namely consumption and investment.
Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said this was very much in line with higher growth in private sector wages to 4.7 per cent in Q1 2022 from 2.5 per cent in the previous quarter, which was in tandem with the decline in the unemployment rate from 4.3 per cent in Q4 2021 to 4.1 per cent in Q1 2022.
"Further reopening of the economy has been instrumental in contributing to the domestic economy as households and businesses are freer to transact which can be GDP accretive," he told the New Straits Times yesterday.
"To a large degree, higher growth in the Q1 2022 can really explain why the (Bank Negara's) overnight policy rate (OPR) was raised by 25 basis points (bps) on Wednesday. Further increase in the OPR is quite likely as the recovery becomes more sustainable," he added.
On Wednesday, Bank Negara raised the OPR by 25bps to 2.00 per cent.
The hike beats economists' projection that the central bank would keep the historic low OPR at 1.75 per cent at least by the second half (2H) of the year.
Over the course of the Covid-19 crisis, the OPR was reduced by a cumulative 125bps to provide support to the economy.
Sunway University Economics professor Dr Yeah Kim Leng said although global growth uncertainties had increased since the outbreak of the Russia-Ukraine war, the outlook for the coming quarters remains positive given the country's early transition to the endemic stage since April 1.
He said private consumption had improved substantially as most pandemic restrictions had been removed.
"Although private investment grew marginally at 0.4 per cent in Q1, the pace is expected to pick up in the coming quarters given the improvement in foreign direct investment inflow last year and investor confidence in line with the better growth outlook this year," he said.
Yeah said despite a decline in public investment, the coming quarters woould likely see positive growth as the implementation of new and ongoing large infrastructure projects gathers momentum.
"The expected pickup in public investment is supported by the higher allocation in development expenditure in the 2022 Budget. While external headwinds appear to be intensifying, the strengthening domestic demand will be a key source in achieving growth within Bank Negara's projected 5.3-6.3 per cent range," he said.
Putra Business School associate professor Dr Ahmed Razman Abdul Latif expects the firm growth to continue in Q2 as well even with the impending higher inflation rate and weakening ringgit.
"The economy will be able to meet Bank Negara's 5.3-6.3 per cent GDP growth by the end of this year as Q1's GDP growth has demonstrated that our economy is back on track," he said.
Meanwhile, Juwai IQI chief economist Shan Saeed said the company had kept its GDP growth projection unchanged at between 4.0-5.0 per cent for 2022.
"The target looks pragmatic and achievable as macroeconomic stability returns with economy fully opened up and trade and commerce are on the upsurge," he said.
Source: https://www.nst.com.my/business/2022/05/796328/after-firm-growth-q1-malaysias-economy-set-further-expansion