Malaysia’s strong Q1 GDP heralds further policy tightening

  • Q1 GDP +5% y/y vs. Reuters poll forecast +3.6%
  • Economic growth forecast for 2022 kept within a range of 5.3% to 6.3%
  • governor says he sees no risk of recession

KUALA LUMPUR, May 13 (Reuters) – Malaysia’s economic growth picked up in the first quarter and is expected to accelerate further this year amid buoyant demand and the reopening of international borders, the central bank said on Friday.

Gross domestic product rose 5% in the January-March period, faster than the 4% expansion predicted by a Reuters poll and up from 3.6% growth in the previous quarter. Read more

Bank Negara Malaysia (BNM) said it factored global supply chain disruptions, the Russian-Ukrainian war and strict lockdowns in China to stem the COVID-19 outbreak into its 2022 growth projections.

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“Although downside risks have increased on the global front, we are confident in our growth trajectory and we see no recession risk in Malaysia,” she told a news conference.

The central bank said in presentation slides that growth would expand further. “In 2022, growth will be supported by a continued expansion in global and domestic demand.”

The BNM maintained its economic growth forecast for 2022 between 5.3% and 6.3%, which it had revised downwards in March.

The expansion was mainly driven by the service and manufacturing sectors, particularly continued demand for semiconductors and consumer products such as motor vehicles, BNM said.

Malaysia – which has seen some of the worst outbreaks of COVID-19 in the region – lifted most of its coronavirus measures this month as infection rates slowed under a program of accelerated vaccination.

The central bank on Wednesday unexpectedly raised its benchmark interest rate to 2.00% from an all-time low of 1.75%, citing a firmer domestic growth trajectory as well as inflationary pressures stemming from the conflict in Ukraine. and global supply chain disruptions.

“If the positive growth trajectory continues and barring unexpected shocks, it would be appropriate for the MPC (Monetary Policy Committee) to further reduce the degree of monetary accommodation,” she said.


Headline inflation is expected to average between 2.2% and 3.2% this year, unchanged from the BNM’s previous estimate.

Deputy Governor Marzunisham Omar said that although there are pressures on prices, especially on food items, inflation in Malaysia remains subdued compared to other countries.

However, longer-term solutions are needed to contain inflation due to the rising cost of government subsidies, he added.

Marzunisham said the government was looking to broaden the country’s tax base to increase revenue, including the reintroduction of the goods and services tax (GST).

“(The central bank is) in favor of the GST and of course we have to think about the timing of the reintroduction which will be taken into account by the government,” he said.

Capital Economics economist Alex Holmes said Malaysia’s economic recovery is expected to continue through 2022 as an outbreak of the Omicron variant COVID-19 in the first quarter subsided.

“With virus cases declining and national restrictions easing, consumer spending likely rebounded further this quarter,” he said in a note.

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Editing by Jacqueline Wong

Our standards: The Thomson Reuters Trust Principles.


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