KUALA LUMPUR: Malaysia's economy should sustain its momentum throughout the year after growing at its fastest pace in a year during the first quarter (Q1), economists said.

The economy expanded at a faster pace of 4.2 per cent in Q1, beating market expectations of a 3.9 per cent growth.

Bank Negara Malaysia governor Datuk Abdul Rasheed Ghaffour said the better growth print was driven mainly by private sector expenditure and turnaround in exports.

He noted that exports had turned around to record positive growth in Q1 this year after three consecutive quarters of contraction. This was driven mainly by a broad-based improvement for manufactured goods.

Abdul Rasheed also said growth is projected to improve to between 4.0 per cent  and 5.0 per cent this year, anchored by sustained expansion of domestic demand and improvement in external demand. 

Headline and core inflation, menawhile, are projected to remain moderate between 2.0 per cent and 3.5 per cent as well as 2.0 per cent and 3.0 per cent respectively. 

Bank Muamalat Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid said the strong Q1 performance suggests that the prospects for the upcoming period will continue to bolster the economy. 

He noted that the performance had surpassed expectations with domestic demand, particularly investment, emerging as the key driver. 

"We saw private and public investment accelerate to 9.2 per cent and 11.5 per cent in the first quarter respectively. This has been contributed to by the implementation of infrastructure projects. 

"At the same time, consumer spending was also growing at a rate of 4.7 per cent, up from 4.2 per cent, despite having to contend with rising cost of living and a weak ringgit. 

"Looking ahead, I believe our economic performance will remain above four per cent and will accelerate further in the second half of 2024 (2H24)," he told Business Times. 

On inflation, Afzanizam agrees with Bank Negara's assessment that it boils down to policy changes, especially on fuel subsidies, as well as the impact on input costs due to exchange rate movements. 

He said in that sense, the overnight policy rate (OPR) is likely to remain elevated. 

"We cannot rule out the possibility of a higher OPR, however. It's a very delicate situation." 

Economist Dr Geoffrey Williams said the Q1 performance shows resilience in the overall economy and makes the four-five per cent growth target more achievable.   

He added that this momentum can be sustained but there are additional factors that can add to growth.

"The Q1 data is stronger than the advanced estimates on an annual basis and quarterly growth is also positive compared to the contraction in 2Q22 so Malaysia avoided a technical recession.  

"The headline inflation is only modestly higher at 1.7 per cent compared to 1.6 per cent but core inflation has fallen to 1.8 per cent from two per cent. This shows that the inflation environment is stable and likely to remain so in the coming months," he said. 

Therefore, Williams said sustaining the positive momentum is certainly possible, as there will be some push from the Employees Provident Fund (EPF) Akaun Fleksibel option, which might add RM25 billion to consumption. 

"The recent US sanctions on China opened opportunities for Malaysia to replace Chinese suppliers. This will help exports," he noted. 

Malaysian Institute of Economic Research economist Dr Shankaran Nambiar opined that the stronger 1Q24 data indicates that there is more scope for a continued optimistic outlook for the country. 

He suggested that there may be an increase in tourist arrivals in June and July, along with a more optimistic outlook for investments in the coming months. 

"Additionally, we can anticipate the initiation of some projects. I believe the growth numbers will maintain their momentum in the months ahead.  

"However, I wouldn't be overly concerned just yet. Nevertheless, we should keep an eye on household debt," he said. 

Moving forward, Nambiar believes that inflation will not be a problem, given the improvements in trade, tourism, and consumer spending. 

He pointed out that these factors are the reasons behind the country's increasing growth numbers. 

"Compared to 4Q23, headline inflation has only increased by 0.1 per cent from the previous quarter, indicating that there is still nothing to worry about regarding inflationary pressures. 

"The right measures have been put in place to keep household spending buoyant," he added.

https://www.nst.com.my/business/economy/2024/05/1052132/momentum-likely-be-sustained