Economy

Malaysia Central Bank Optimistic as Economy Grows at Fastest Rate in Six Quarters

By Danial Azhar and Rozanna Latiff

KUALA LUMPUR – Malaysia’s economy experienced its fastest growth in 18 months during the second quarter, supported by increased household spending, exports, and investment. The central bank anticipates that full-year growth will be near the upper end of its forecast range.

According to data released, the Gross Domestic Product (GDP) grew by 5.9% in the April-to-June period, significantly up from 4.2% in the first quarter, and exceeding analysts’ expectations of a 5.8% increase. This growth is the highest since the fourth quarter of 2022 when the economy expanded by 7.4%.

On a quarter-on-quarter seasonally adjusted basis, the GDP rose by 2.9%, compared to a 1.5% increase in the January-to-March period, as reported by Bank Negara Malaysia and the Statistics Department.

Looking ahead to 2024, the central bank forecasts growth to reach the upper end of its 4%-5% range, driven by stronger domestic and external demand, as indicated by BNM Governor Abdul Rasheed Ghaffour. He noted, "Household spending will remain the anchor of growth for the rest of this year, supported by continuing employment and income growth along with increased policy support and robust investment activities."

In 2023, the economy had grown less than anticipated, achieving a 3.7% increase due to weak global demand. The ringgit is expected to gain further support in the coming months as the interest rate differentials between the United States and Malaysia narrow. The currency has rebounded from a 26-year low against the U.S. dollar, gaining 3.3% so far this year.

Last month, the central bank maintained its key interest rate at 3.00%. It stated that inflation is anticipated to remain manageable even as it trends higher following diesel subsidy cuts in June. Average headline and core inflation in the first half of 2024 was reported at 1.8%, with projections for headline inflation to range between 2% and 3.5% for the year.

Analysts expect the central bank to keep interest rates steady for the remainder of the year, noting the risk of rising inflation as Malaysia continues to pursue further subsidy reductions. The government plans to adjust subsidies for RON95 fuel, but the timeline for implementation has not yet been disclosed.

Economist Mohd Afzanizam Abdul Rashid from Bank Muamalat Malaysia remarked, "We believe the central bank will continue to be vigilant in their monetary policy, particularly concerning inflation. Their maintained inflation forecasts indicate some uncertainties regarding the country’s inflation outlook."

A note from Capital Economics suggested that despite the positive performance, Malaysia may encounter a slowdown ahead due to declining commodity prices, inflation risks, and diminishing boosts from tourist arrivals.

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