Malaysian Economy Shows Resilience in Q1 2023, Driven by Domestic Demand

The Malaysian economy demonstrated further expansion in the first quarter of 2023, primarily fueled by robust domestic demand. The labor market showed improvement, with strong employment growth and rising wages, leading to increased private consumption spending. Investment activity was supported by capacity expansion and the ongoing implementation of multi-year projects. Inbound tourism also continued its recovery, boosting services exports and partially offsetting slower growth in goods exports. The services and manufacturing sectors remained the key drivers of economic growth. On a quarter-on-quarter seasonally-adjusted basis, the economy grew by 0.9%.

Headline inflation during the quarter decreased to 3.6%, primarily due to lower core inflation and a decline in RON97 prices. Core inflation, while moderating, remained elevated at 3.9%, driven by selected services such as telephone and telefax service, food away from home, and personal transport repair and maintenance. Price pressures persisted, with a majority of Consumer Price Index (CPI) items recording monthly price increases. The Malaysian economy witnessed a marginal appreciation of 0.1% against the US dollar during the quarter, amid evolving concerns over the US economy and global banking sector stress.

Despite global uncertainties, Malaysia’s economy is projected to remain resilient in 2023, with a growth forecast of 4.0% to 5.0%. Firm domestic demand, supported by improving employment, income growth, and ongoing projects, will be the key drivers. Higher inbound tourism activity is expected to boost high-touch services industries. While headline and core inflation are expected to moderate, core inflation will remain elevated due to strong demand conditions. Price controls and fuel subsidies will help contain upward inflationary pressures. The growth outlook is relatively balanced, with upside risks from domestic factors and downside risks from weaker global growth and volatile financial markets.

Overall, Malaysia’s economy is expected to maintain its positive trajectory, supported by domestic strength and a cautiously optimistic global outlook.

12 May 2023

Author: Terry KS

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