THE Malaysian economy continued to expand, recording a robust growth of 5.6%,in the first quarter of 2017 (Q1), an improvement from 4.5% in the previous quarter.

The growth, which exceeded the median forecast of 4.8%,  was driven by higher private expenditure and exports.

“Public sector expenditure also became more supportive of growth with expansion in both consumption and investment,” Bank Negara Governor Muhammad Ibrahim said in a press conference today.

Private consumption expanded by 6.6%, supported by continued expansion in employment and wage growth and private investment, which grew 12.9%, driven mainly by capital spending in the services and manufacturing sectors.

On a quarter-on-quarter basis, the economy grew by 1.8%.

He said external factors were key to the Q1 performance and recovery in global trade since Q4 of 2016 has gained further momentum. 

“Gross exports recorded stronger growth of 21.4% in Q1 of 2017. The improvement was broad-based across major products and markets, including both manufactured products such as E&E and commodity exports,” he said, adding that the growth of gross imports was also higher at 27.7%.

On the supply side, most economic sectors expanded at a faster pace, he said, as improvement was mostly contributed by the turnaround in the agriculture sector, to register positive growth of 8.3% compared with -2.5% in Q4 of 2016.

“Growth in agriculture rebounded as oil palm recovered from the negative impact of El Nino. The performance of the sector was also supported by a robust expansion in rubber production,” he said. 

Manufacturing grew by 5.6% in Q1 of 2017, underpinned by the electronics and electrical segment in line with the continued favourable global demand for semiconductors. 

“Growth was also stronger in consumer-related segment, particularly due to a rebound in motor vehicle production, and the services sector grew by 5.8%, benefitting from the improvement in household spending, capital market and trade-evaluated activities.” 

Headline inflation, meanwhile, rose to 4.3% in Q1 of 2017 due to higher fuel prices. Inflation in the transport category was higher with the price of RON95 petrol rising by 29%, to average RM2.23/litre in Q1 of 2017, from the average of RM1.73/litre in Q1 of 2016.

“It is important to note that the higher inflation rate was driven by cost rather than demand factor. Going forward, headline inflation is expected to moderate in second quarter onwards.”

He added that public perception of inflation was influenced by the prices of frequently purchased items, such as food. 

“This item typically experiences higher inflation; however, the household also spends on other items such as clothing, which are in fact experiencing price decline.

Overall, the Malaysian economy is on track to achieve 4.3%-4.8% growth by the end of the year, he said. 

“Our assessment is that the Malaysian economy is poised to register a better performance; growth will remain driven mainly by sustained domestic demand with additional support from improvement in export. – May 19, 2017.