Malaysia's economy expands 5% in 1Q

KUALA LUMPUR: Malaysia's economy expanded 5% year-on-year in the first quarter of 2022, above the median expectation of 4% growth by a Reuters poll of economists.

The improved performance compares to a 0.5% contraction in gross domestic product in the same quarter in 2021 (1Q21) and growth of 3.6% in the immediate preceding quarter (4Q21).

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Bank Negara said in a statement on Friday that the expansion was supported by improving domestic demand as economic activity continued to normalise with the easing of containment measures.

According to the central bank, the improvement also reflected the recovery in the job market with unemployment in the country falling to 4.1% from 4.3% in the previous quarter, as well as policy support.

"Strong external demand amid the continued upcycle in global technology provided further lift to growth.

"On the supply side, services and manufacturing sectors continued to drive economic growth, expanding by 6.5% and 6.6% respectively," said the bank.

On a quarter-on-quarter seasonally adjusted basis, the economy grew by 3.9% as compared to 4.6% in 4Q 2021.

Headline inflation moderated to 2.2% in the quarter reflecting the smaller contribution from the dissipating base effect from lower domestic retail fuel prices last year, and the absence of the base effect from electricity tariff rebated implemented in 2020.

Core inflation increased to 1.7% during the quarter due to price adjustments amid the higher costs and improving demand conditions.

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Bank Negara said price increases were more noticeable, specifically for food items due to supply-related factors such as higher global commodity prices.

On the outlook for 2022, Bank Negara governor Tan Sri Nor Shamsiah said the domestic economy is expected to improve further with growth projected at 5.3% to 6.3% as announced in March 2022.

"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.

Downside risks to the growth momentum include weaker-than-expected global growth, further escalation of geopolitical conflicts, worsening supply chain disruptions, adverse developments surrounding Covid-19 and heightened financial market volatility, she added.

For 2022, in an environment of high input costs and improving demand, headline inflation is projected to average between 2.2% and 3.2%.

Underlying inflation, as measured by core inflation, is also expected to trend higher during the year, averaging between 2% to 3%.

The bank said several key factors are expected to partly contain upward pressure on prices, namely the existing price control measures and the continued spare capacity in the economy.

Nonetheless, it said the inflation outlook remains subject to commodity price developments, arising mainly from the military conflict in Ukraine and prolonged supply-related disruptions.

It added that the outlook is also contingent on domestic policy measures on administered prices.