[KUALA LUMPUR] Malaysia’s economy grew more than expected in the first quarter of 2024, supported by private expenditure and a turnaround in exports, the central bank said on Friday (May 17).

The country’s gross domestic product expanded 4.2 per cent year on year in the first quarter, higher than the 3 per cent growth in the fourth quarter of last year.

The final figure also exceeded the 3.9 per cent advance GDP growth estimate released by the Department of Statistics Malaysia (DOSM) in April, as well as the median forecast of 3.9 per cent by a group of economists in a recent Reuters poll.

On a quarter-on-quarter, seasonally adjusted basis, the economy grew by 1.4 per cent in the first quarter.

At a press conference on Friday, DOSM chief statistician Mohd Uzir Mahidin attributed the growth to higher household spending, a turnaround in goods exports, higher tourist arrivals and stronger investment activities. Bank Negara Malaysia governor Abdul Rasheed Ghaffour said most sectors registered higher growth, driven mainly by the rebound of the manufacturing sector and continued growth in the services sector.

“However, lower agriculture production due to hot weather conditions has weighed on growth,” he added.

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Net exports, although continuing to decline, are experiencing slower contraction amid the recovery in goods and services exports. Malaysia’s net exports fell 24.5 per cent in the first three months of 2024, compared with the 52.9 per cent decline in the fourth quarter last year.

Economists anticipate that the realisation of various investment projects, coupled with improved external demand, will bolster the manufacturing and export sectors, thereby continuing to support the country’s economic growth momentum.

ANZ Research chief economist for South-east Asia and India Sanjay Mathur expects more approved investment projects will soon commence their developments or operations this year; this will further strengthen private capital expenditure.

UOB economists Julia Goh and Loke Siew Ting maintained their full-year GDP projection at 4.6 per cent, in view of the positive growth momentum. They also expect that upcoming investment activities will continue fuelling domestic demand.

“Other key growth catalysts include the upturn in global tech cycle, increasing tourism activities and continued implementation of budget measures such as infrastructure projects and cash aids,” said Goh and Loke.

The central bank maintained its earlier full-year GDP growth forecast of 4 to 5 per cent for 2024, following 3.7 per cent growth in 2023.

The country’s headline inflation remained moderate at 1.7 per cent in the first quarter of 2024, compared with 1.6 per cent in the previous quarter. Core inflation, meanwhile, eased to 1.8 per cent, from 2 per cent in the previous quarter.

As the economy continues to expand and inflation growth remains moderate, Abdul Rasheed said this set a “right timing” for the government to implement subsidy rationalisation, which involves the removal of the blanket fuel subsidy.

Bank Negara estimated that, after accounting for the potential impact of the subsidy rationalisation, headline inflation will average between 2 and 3.5 per cent this year. Core inflation has been projected to average between 2 and 3 per cent.

Bank Negara held its key interest rate steady at 3 per cent at a policy meeting last Thursday, saying it was at a level that was supportive of the economy.

The governor noted that domestic financial markets continued to be driven by shifting financial market expectations over the monetary policy path of major central banks, in response to the US Federal Reserve’s move to maintain its current policy interest rate for a longer period, in the light of continued strong economic data.

“The current pressure reflects broader currency market dynamics and is not specific to Malaysia,” he said.

In tackling the depreciation of the ringgit, Bank Negara has deployed a non-interest-rate measure, by engaging with government-linked companies to repatriate and convert their foreign investment income into the currency.

Abdul Rasheed said such a measure has shown its effectiveness, reflected in recent ringgit movements and foreign exchange (forex) market trading volumes since the central bank initiated the engagements on Feb 26.

Bank Negara said that Malaysia’s daily average forex market trading has risen to US$17.6 billion, from US$15 billion before Feb 26.

Over the Feb 26 to May 15 period, the ringgit strengthened 1.6 per cent to between RM4.68 and RM4.70. The ringgit nominal effective exchange rate rose by 2.5 per cent, making the currency one of the best performers in the region.

As at 7pm on Friday, the ringgit was trading at RM4.68 against the US dollar. The currency depreciated more than 2 per cent against the greenback from RM4.58 on Jan 1. At its trough, it slipped to a 26-year low of RM4.792 against the US dollar on Feb 19.