The strong performance was achieved as lower global demand is expected to put pressure on the export-oriented economy of Southeast Asia.
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The Malaysian economy rebounded in the first quarter on solid domestic demand, central bank and government data showed on Friday.
Gross domestic product rose 5.6%, higher than the 4.8% annual growth forecast by analysts in a Reuters news agency survey, according to Bank Negara Malaysia (BNM) and the Department of Statistics. In the fourth quarter of 2022, the economy grew by 7.1% compared to the previously announced 7.0%.
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Growth hit a 22-year high of 8.7 percent last year as Malaysia recovered from the pandemic-fuelled downturn, but lower global demand is expected to weigh on the outlook for Southeast Asia’s export-led economy.
However, the central bank said that strong domestic demand will continue to drive economic growth, keeping its growth forecast for 2023 at 4 to 5 percent.
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Malaysia’s quarterly growth was supported by improved labor market conditions, the continuation of major infrastructure projects and the recovery of tourism, BNM Governor Nor Shamsia Mohd Yunus said at a press conference.
“The economy is no longer in crisis and actually continues to gain strength,” she said.
“Risks to the growth outlook are fairly balanced, with downside risks mainly due to external factors.”
Nor Shamsiah noted continued risks to inflation and did not discount further normalization of the key interest rate after the central bank’s unexpected 25 bps hike last week, citing global events.
Some economists have taken the rate hike, which marked a return to pre-pandemic levels of borrowing costs, as signaling the end of a cycle of central bank tightening.
“Any normalization will be subject to any developments that materially affect our assessment of inflation and growth prospects,” Nor Shamsia said when asked to comment on whether the decision to raise BNM rates has been made.
BNM said it expects core and headline inflation to moderate but remain high through 2023.
Headline inflation is expected to average between 2.8 and 3.8 percent this year, compared to 3.3 percent in 2022.
