Malaysia economy grows 5.6% in Q1, fastest pace in two years

Growth was well above the median forecast of 4.8 per cent in a Reuters poll.
Growth was well above the median forecast of 4.8 per cent in a Reuters poll. PHOTO: REUTERS

KUALA LUMPUR (REUTERS) - Malaysia's economy grew at a better-than-expected 5.6 per cent the first quarter, easily beating expectations, as buoyant exports and solid domestic demand produced the fastest growth in two years.

January-March growth, announced by the central bank on Friday (May 19), was well above a Reuters poll forecast of 4.8 per cent and the previous quarter's 4.5 per cent expansion.

"We expect growth to be sustained," Bank Negara Malaysia (BNM) governor Muhammad Ibrahim told at a news conference.

He said the central bank was keeping its full-year growth forecast at 4.3-4.8 per cent. In the first quarter, he said, it saw "strong growth in private investments and exports".

March exports surged 24.1 per cent from a year earlier in ringgit terms, and those in February 26.5 per cent.

But the current account surplus, which has generally been decreasing, narrowed in the first quarter to RM5.3 billion (S$1.7 billion) from RM12.5 billion in 2016's last period, due to lower goods surplus and larger services deficit.

"A recovery in commodity prices should help bolster the current account surplus in the coming quarters, though the surplus is still likely to remain low by past standards," Capital Economics said in a note.

Portfolio investments saw a big net outflow of RM31.9 billion, compared to a RM19.1 billion outflow in the fourth quarter.

Capital outflows hit a record in November-January, when foreign investors divested holdings of government bonds to the tune of RM27.9 billion.

In early 2016, tepid demand for Malaysia's oil and other commodity exports pulled full-year growth down to 4.2 per cent, the lowest since contraction in 2009, from 5 per cent in 2015.

The ringgit, one of the region's worst performing currencies, in 2016, hit a 19-year low of RM4.9880 on Jan 4 but so far this year has strengthened about 3.7 per cent against the dollar.

The BNM governor said that stability measures have reduced volatility in the ringgit and the domestic forex market. "We think the ringgit will further reflect the strength of the Malaysian economy," Mr Muhammad said.

The central bank has said inflation averaged at 4.3 per cent in Q1.

Annual consumer price inflation hit an eight-year high in March at 5.1 per cent, though it slowed to 4.4 per cent in April.

"The spike (in inflation) was largely due to higher oil prices. We still expect inflation to come in at 3-4 per cent. Again, there is some uncertainty in global markets, but what is important is its cost driven and not due to demand," Mr Muhammad told reporters.

Rising living costs could eat into support for Malaysia's long-ruling political coalition led by Prime Minister Najib Razak, who is widely expected to call for early polls later this year to take advantage of a weak and divided opposition.

Mr Najib, whose popularity took a hit from a corruption scandal involving state-owned fund 1Malaysia Development Berhad (1MDB), also needs a strong economy to bolster his electoral chances.