BNM declares Malaysia's economy no longer in crisis after 5.6 per cent expansion in first quarter

KUALA LUMPUR - Bank Negara Malaysia’s announcement that the economy is no longer in crisis and continues to gain strength is a big lift to sentiment three years since the outbreak of the pandemic.

The central bank today announced that Malaysia recorded an impressive 5.6 per cent gross domestic product (GDP) growth in the first quarter (1Q 2023), fuelled by domestic demand, strong growth in the labour market and continued expansion in wages that supported consumption spending.

At a press conference on Friday, governor Tan Sri Nor Shamsiah Mohd Yunus said the growth in 2023 will continue to be supported by further expansion of household spending, continued investment activity, an improving labour market and higher tourism activities.

"The whole economy is no longer in crisis, in fact, it continues to gain strength,” she said when announcing the country’s 1Q 2023 economic performance.

The GDP growth met projections made by some research firms and banks while beating bearish forecasts of below 5 per cent.

Bank Islam Malaysia Bhd (BIMB) and TA Research’s projections were spot on. BIMB said as Malaysia has registered the best first-quarter performance since 2015, it is maintaining a full-year GDP growth forecast of 4.5 per cent.

"Such compelling growth in the first quarter was bolstered by strong domestic demand, coupled with moderating inflation amid facing external headwinds,” BIMB chief economist Firdaos Rosli said in a note.

Bank Muamalat Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid noted that the Malaysian economy was growing at a decent rate of 5.6 per cent with both engines, domestic demand and exports, growing by 4.6 per cent and 54.4 per cent, respectively.

"BNM also expects that the economy will reach full employment status this year, which means spending among households will continue to hold up.

"Nonetheless, the inflation rate is expected to stay elevated.

"The upside risks would stem from global commodity prices, imported inflation from a weak ringgit, strong demand from China and larger revision to subsidies and price cap policies,” he told Bernama.

He said to a large degree, the recent overnight policy rate (OPR) hike was justified as the growth trajectory has normalised.

"In a nutshell, the Malaysian economy is on track to achieve GDP growth of 4 to 5 per cent this year. As for the OPR, I think there is no urgency to raise it further as it has reached a level that is consistent with the growth trajectory,” he continued. "And the BNM has built a comfortable policy space for their response to future shocks. So on the OPR, it should stay at 3.00 per cent throughout the year.”

In its third monetary policy meeting held on May 3, the central bank announced a 25 basis points hike to 3 per cent.

The ringgit strengthened after the OPR hike although economists believe the local currency is still far from its January strength of 4.2345 versus the US dollar.

At Thursday’s close, the local note slipped to 4.4615/4665 from Wednesday’s closing rate of 4.4565/4605.

MIDF Research said it believes that once the US Federal Reserve hit the pause button on interest rates, the local note would appreciate faster. It is keeping its USD/MYR forecast to average at RM4.20 per US$1 and end the year at RM4.

Separately, in supporting countries’ economic stability, the International Monetary Fund (IMF) has urged policymakers to prioritise keeping fiscal policy consistent, saying that the near-term outlook is still complex.

"Many countries will need a tight fiscal stance to support the ongoing disinflation process, especially if high inflation proves more persistent.

"Tighter fiscal policy would allow central banks to increase interest rates by less than they otherwise would, which would help contain borrowing costs for governments and keep financial vulnerabilities in check.

"Tighter fiscal policies require better-targeted safety nets to protect the most vulnerable households, including addressing food insecurity while containing overall spending growth, as governments are likely to confront social pressures to compensate for past increases in the cost of living,” the IMF said. - BERNAMA