This bright outlook is underpinned by the 5% GDP growth achieved in the first three months of this year, as stated by Bank Negara Malaysia (BNM) in its first quarterly report for 2022.
Bank Islam Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid believes the full year target is achievable as domestic demand, namely consumption and investment, has been driving growth for Q1.
He pointed out that consumer spending accelerated to 5.5% in the quarter from 3.7% previously.
“This is very much in line with the 4.7% rise in private sector wages in 1Q2022 from 2.5% in the previous quarter, which is in tandem with the decline in the jobless rate from 4.3% in 4Q2021 to 4.1% in the 1Q2022,” he told FMT.
“What it means is that further reopening of the economy has been instrumental in contributing to the (growth in) GDP as households and businesses are at greater liberty to spend,” he added.
Afzanizam said the higher growth also underscored the rationale for the decision to raise the overnight policy rate (OPR) recently.
“Further increases in OPR is quite likely as the recovery becomes more sustainable,” he added.
The last time the Malaysian GDP achieved the same level of growth was in 2017 when it saw a 5.9% expansion, supported by greater private and public sector spending.
Similarly, Sunway University economics professor Yeah Kim Leng is heartened by the growth for the quarter and the country’s prospect to hit the full year target.
“Despite growing global uncertainties, the outlook for the coming quarters remains positive since the country’s early start in the transition to the (Covid-19) endemic stage,” he said.
Yeah believes the improving inflow of foreign direct investment (FDI) last year and better growth outlook in 2022 will help private investment gain traction in the coming quarters despite only growing marginally at 0.4% in the first quarter.
“Moreover, public investment is expected to also pick up despite seeing a decline in the first quarter.”
He explained this is supported by higher allocation in development expenditure in Budget 2022 and the implementation of new and ongoing large infrastructure projects gaining momentum.
However, Centre for Market Education (CME) chief executive officer Carmelo Ferlito advised caution.
While the 5% growth has surpassed the 4.3% consensus among analysts polled by Reuters, Ferlito said there is still a need to restoring savings capacity by tackling household debts and relaunching private consumption.
BNM said that in the first quarter, private consumption and public consumption grew by 4.4% and 6.7%, respectively, while private investments grew by a thin 0.4% and public investments fell 0.9%.
He pointed out that long-term sustainable growth is based on investments financed by the existence of real savings, and savings are the counterpart of consumption.
“Therefore, the combination for long-term sustainable growth is made of investments and savings, rather than investments and consumption,” Ferlito explained.
“In other words, in order to generate sustainable growth, an increased demand for loanable funds destined for investments needs to be preceded by increased thriftiness among consumers.”
Ferlito pointed out that the quarter’s growth is still led by expenditures for today, without a programme for the future.
“Such growth is very fragile and investors are likely to be put in a wait-and-see mood,” he said.
Ferlito said this growth model is also inflationary by nature. Also, government operating expenditures grew more than government revenues, further deepening the hole in government pockets and increasing inflation tensions, he said.
According to BNM, Malaysia’s headline inflation had moderated to 2.2% in Q1 compared to 3.2% in the preceding quarter due to the smaller base effect from retail fuel prices last year and the absence of electricity tariff rebates in 2022. Subsequently, core inflation increased to 1.7% during the quarter, from 0.8% in Q42022.
Unemployment rate fell to 4.1% in Q1 from 4.3% in the preceding quarter.