Bank Negara Malaysia (BNM) attributed the growth to an improving labour market, continued rise in domestic demand and increased tourism activities.
However, the growth moderated from 5.6% in Q1 2023 thanks to weaker external demand amid a global technology downcycle, lower commodity production and a high base effect from Q2 2022, the central bank said when unveiling the economic performance for Q2 2023 report today.
The Q1 2023 growth performance had contributed strongly towards the 2023 whole year forecast of 4% to 5%, according to the finance ministry.
Looking ahead, the report said, domestic demand would likely remain the key growth driver.
It forecasts continued growth in the labour market as employment and income prospects are expected to improve further.
It also singled out the implementation of new and existing investment projects as well as higher tourism activity as potential growth drivers.
In the tourism sector, the report said a recovery in tourist arrivals and travel receipts towards pre-pandemic levels was among the factors that have contributed to the Q2 growth.
However, challenges remain, it said.
It pointed out that the slowdown in global economic growth, led by tighter monetary policies in major economies as well as a prolonged global technology downcycle were slowing down growth.
It said the output in the commodity sector was also affected by the hot weather and poor plant maintenance.
On inflation, BNM expects headline and core inflation to average between 2.8% and 3.8% in 2023.
Headline inflation trended lower in line with moderating costs conditions, whilst core inflation declined in tandem with lower inflation for food-away-from-home and communication services.
The main factors contributing to headline inflation in 2023 included higher core inflation due to strong domestic demand and labour market improvements, as well as a gradual reduction in subsidies through adjustments to electricity surcharges.
Other factors included lower commodity prices, prevailing price controls and subsidies on key necessity items.
As for this year’s outlook, BNM estimates that Malaysia’s GDP will expand by 4% to 5%, supported by domestic demand amid improving labour conditions, implementation of multi-year projects and rise in tourism activities.
“Risks to Malaysia’s growth outlook are subject to downside risk stemming primarily from weaker-than-expected global growth,” said BNM governor Abdul Rasheed Ghaffour.
“There are, however, upside risk factors such as stronger-than-expected tourism activity and faster implementation of projects.”