Malaysia's economy 'no longer in crisis' as return of tourists buoys growth

Malaysia's economy grew 5.6 per cent between January and March, the central bank said on Friday, as a rebound in domestic consumption and tourism continued to free the economy from the malaise caused by the pandemic.

Full-year growth remained on track for between 4 per cent and 5 per cent, especially if Malaysia attracts its expected 20 million visitors, Bank Negara Malaysia (BNM) Governor Nor Shamsiah Mohd Yunus told reporters.

"The economy is no longer in crisis and has, in fact, continued to gain strength," she said.

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Headline inflation was expected to track between 2.8 per cent and 3.8 per cent, the governor added.

Exports, however, softened in the first quarter in line with worldwide trends of slowing demand amid expectations of a global economic downturn, partly driven by Russia's invasion of Ukraine, and easing demand from top trading partner China, according to analysts.

Growth in the Southeast Asian nation was widely expected to moderate this year following the record 8.7 per cent pace in 2022, as most of the world fully reopened their borders after two years of strict movement curbs to stem the spread of Covid-19.

That was Malaysia's best annual performance since 2000, when the economy expanded by 8.9 per cent as it recovered from the Asian financial crisis.

Experts say Malaysia may be set for a significant boost in trade and investments from China after securing about 170 billion ringgit (US$38.6 billion) in investment commitments during Prime Minister Anwar Ibrahim's maiden visit to Beijing.

Nor Shamsiah said the anticipated return of Chinese tourists and the investment commitments made during Anwar's China trip could provide a significant boost to Malaysia's growth this year.

The governor said tourist arrivals were a key driver behind growth in the services sector, which accounts for 58 per cent of GDP. She also expected further support to growth if Malaysia and China were able to realise some of the investment commitments earlier than expected.

"Yes, it will definitely help our exports, and also in tourism we are seeing very encouraging results," she said.

Nor Shamsiah said any decision to adjust the central bank's monetary policy would depend on prevailing domestic and global developments.

"There are many things happening at the global stage, be it price pressures, growth or geopolitical uncertainties. Depending on how these things turn out, it may have an impact on the domestic economy," she said.

The central bank unexpectedly raised its overnight policy rate by 25 basis points to 3.00 per cent last week, citing the need to normalise monetary accommodation as the economy was resilient and to manage persistent inflation.

Some economists had seen last week's rate increase - which marked the return of borrowing costs to pre-pandemic levels - as signalling the end of the central bank's tightening cycle.

Capital Economics and Oxford Economics said higher interest rates and weak external demand could drag on the economy, with both estimating lower-than-consensus growth of about 3 per cent for Malaysia this year.

"With headwinds to both domestic and external demand mounting, we continue to expect the economy to grow at a below-trend pace this year," Capital Economics Asia economist Shivaan Tandon said in a note.

Bank Muamalat Malaysia chief economist Mohd Afzanizam Abdul Rashid, however, said household spending should remain strong, with the central bank expecting the economy to reach full employment this year.

"The onus is on the domestic engine to provide the catalyst for growth," he told Reuters.

The central bank is expected to keep its key rate at the current level for the foreseeable future, as maintaining its "slightly accommodative" stance may be seen as prudent in the face of ongoing global economic challenges, according to Barclays economist Brian Tan.

Additional reporting by Reuters

This article originally appeared on the South China Morning Post (SCMP).

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