MALAYSIA’S economy rebounded in the first quarter of 2022, registering a 5% growth versus a contraction of 0.5% in Q1 2021.

Bank Negara Malaysia said in a statement today that the positive economic performance was underpinned by improving domestic demand as economic activities continued to normalise with the easing of Covid-19 containment measures.

The country’s GDP has met the projections set by economic analysts who were optimistic about the nation’s improving domestic demand, especially private consumption which forms 58.8% of the GDP.

“The improvement also reflects the recovery in the job market, with the unemployment rate declining further to 4.1% (Q4 2021: 4.3%) as well as continued policy support,” the central bank said in a statement.

Meanwhile, at the press conference on Malaysia’s Q1 2022 GDP performance in Kuala Lumpur today, Bank Negara governor Nor Shamsiah Mohd Yunus said the domestic economy is expected to improve further this year, with growth projected to be between 5.3% and 6.3% this year.

She said the growth will be supported by the stronger domestic demand, continued expansion in external demand and further improvement in the labour market.

“Growth will also benefit from the easing of restrictions, reopening of international borders and implementation of investment projects,” she said.

Nor Shamsiah said the strong external demand amid the continued upcycle in global technology also helped boost growth.

“Nevertheless, risks to Malaysia’s growth momentum remain, including a 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 said.

Bank Negara said on a quarter-on-quarter seasonally adjusted basis, the economy grew by 3.9% in Q1 2022, compared with 4.6% in Q4 2021.

Headline inflation moderated to 2.2%

Headline inflation moderated to 2.2% during the quarter from 3.2% in Q1 2021, mainly reflecting the dissipating base effect from lower domestic retail fuel prices last year and the absence of the base effect from electricity tariff rebates implemented in 2020.

Core inflation increased to 1.7% during the quarter (Q4 2021: 0.8%) due to price adjustments amid higher costs and improving demand conditions, with price increases being more noticeable in food items due to supply-related factors such as higher global commodity prices.

“In an environment of high input costs and improving demand, headline inflation is projected to average between 2.2% and 3.2% this year,” said Bank Negara.

“Underlying inflation, as measured by core inflation, is also expected to trend higher during the year, averaging between 2.0% and 3.0%.”

Several key factors are expected to alleviate the upward pressure on prices, namely the existing price control measures and the continued spare capacity in the economy.

Nonetheless, the inflation outlook remains subject to commodity price developments, mainly arising from the conflict in Ukraine and prolonged supply-related disruptions as well as domestic policy measures on administered prices, it said.

Services and manufacturing sectors  

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

The agriculture sector marginally rose by 0.2% in Q1 2022, compared with 2.8% in the preceding quarter, while the mining and quarrying sector further decreased by 1.1% from a marginal decline of 0.6% previously.

Meanwhile, the construction sector declined 6.2% from 12.2% in Q4 2021. 

Ringgit depreciates 0.7% versus US dollar 

On the ringgit performance, the central bank said the local currency depreciated by 0.7% against the US dollar in Q1 2022 (year-to-date as at May 11, 2022: -4.7%), broadly in line with the movement of regional currencies.

This was due to the broad US dollar strength, driven by the United States’ higher interest rates, global risk-off sentiment due to the conflict in Ukraine and expectations of modest economic growth in China.

However, higher commodity prices and Malaysia’s recovery prospects helped cushion the downward pressure on the ringgit.

“Moving forward, while domestic financial markets are subject to periods of high volatility, spillovers to domestic financial intermediation are expected to be contained,” it said.

“Malaysia’s strong external position and resilient banking system enable the economy to withstand external shocks.”

Net financing to the private sector grew by 4.5% (Q4 2021: 4.7%) amid lower growth in outstanding corporate bonds (Q1 2022: 4.6%; Q4 2021: 5.4%).

Outstanding loan growth was sustained at 4.4% while business loan growth moderated to 4.3% (Q4 2021: 4.8%), reflecting lower growth in outstanding working capital loans amid continued high repayments growth. – Bernama, May 13, 2022.