KUALA LUMPUR, May 12 — Malaysia’s economy recorded a better-than-expected expansion of 5.6 per cent in the first quarter of 2023 (1Q 2023) driven mainly by private sector expenditure, Bank Negara Malaysia Governor Tan Sri Nor Shamsiah Mohd Yunus has said.
She said the factors supporting growth in the first quarter of 2023 (1Q 2023) include further expansion of household spending, continued investment activity and improving labour market and higher tourism activities.
“Malaysia is not at risk of the recession. On a seasonally adjusted basis, the economy has exceeded the pre-pandemic levels.
“The labour market continued to strengthen in the first quarter of 2023 and is expected to remain supportive of domestic demand,” Nor Shamsiah said during a press conference today.
Nor Shamsiah further said the unemployment rate has gradually improved towards pre-pandemic levels, driven by steady employment growth in tandem with expansion in economic activity.
She added that consumption indicators showed continued growth in household spending, this includes high-frequency data such as index submittal trade and passenger car sales which continue to grow above its long term average.
“On the investment front, aggressive large infrastructure projects are progressing without major delays.
“These include the ECRL (East Coast Rail Link), LRT 3 (Light Rail Transit), and Pan Borneo Highway,” she said.
On the status of the country’s exports, Nor Shamsiah said in line with expectations, export growth moderated in the first quarter.
“Despite the slower growth, Malaysia’s exports continue to be supported by ever diversified products and trade partners.
“This performance was further cushioned by improvement in export of services following further recovery in tourist arrivals.
“Even at the current rate of arrivals, we are likely to reach the forecasted number of tourist arrivals of approximately 20 million this year.
“As indicated earlier, we have chosen to be quite conservative in this figure. So, to the extent that international tourism picks up, such as from higher increase of arrivals from countries such as China, there is some upside to our services exports,” she said.
Explaining the country’s current inflation status, Nor Shamsiah said in line with the easing cost environment, headline inflation was lower averaging at 3.6 per cent for the quarter compared to 3.9 per cent in the fourth quarter last year.
“Much if this downward trend was driven by supply factors namely lower RON97 prices which contributed around two-thirds of the decline during the first quarter.
“While core inflation moderated to 3.9 per cent during the quarter compared to 4.2 per cent in the preceding quarter, it remains elevated relative to historical norm of around 2 per cent,” she said.
She stressed that core inflation is more indicative of demand pressures, and prices on core items, may stay the same or increase even as cost moderate as demand remain strong.
“For example, food away from home remains high as 8.9 per cent compared or its long-term average of 3.8 per cent.
“The decline in headline inflation is largely due to cost factors.
“Core inflation has come down, but only slightly and at a much lower pace.
“Current core inflation has remained high for longer, even as cost has begun to moderate, strong economic activity has continued to generate demand-driven pressures which have kept core inflation elevated,” she said, adding that this was observed behind conventional demand indicators such as in retail trade and credit card spending data.
“Or even when we go out to shopping malls and restaurants, you can see long queues and traffic jams,” she added.
Going forward, Nor Shamsiah said the headline in core inflation are expected to moderate over the course of 2023, albeit remaining higher than pre-pandemic levels, averaging between 2.8 per cent and 3.8 per cent for the year as a whole.
“While cost pressure eased in line with global commodities prices, core inflation will remain at elevated levels amid firm demand conditions and continual improvement in the labour market.
“The outlook also accounts for the gradual rationalisation of subsidies particularly the revision in electricity surcharge for selected industry participants.
“The balance of risk to inflation remains tilted to the upside and is highly subjective to domestic policy changes on subsidies and price controls, financial market developments as well as risk the global commodity prices arising from both geopolitical conflicts and adverse weather events like the El Nino,” she said.
