The Malaysian economy registered a positive growth of 5.0% in the first quarter of 2022 (4Q 2021: 3.6%). This was mainly supported by improving domestic demand as economic activity continued to normalise with the easing of containment measures.
BNM said that the improvement also reflects the recovery in the job market, with the unemployment rate declining further to 4.1% (4Q 2021: 4.3%), as well as continued policy support.
It said that the strong external demand amid the continued upcycle in global technology provided further lift to growth. “On the supply side, services and manufacturing sectors continued to drive economic growth, expanding by 6.5% and 6.6% respectively. On a quarter-on-quarter seasonally-adjusted basis, the economy grew by 3.9%, “BNM said (4Q 2021: 4.6%).
Commenting on the outlook for 2022, Bank Negara Malaysia Governor Tan Sri Nor Shamsiah said, “The domestic economy is expected to improve further this year, with growth projected at 5.3% to 6.3% as announced in March 2022. This is underpinned by stronger domestic demand, continued expansion in external demand, and a further improvement in the labour market. Growth would also benefit from the easing of restrictions, reopening of international borders, and implementation of investment projects”.
Nevertheless, risks to Malaysia’s growth momentum remain. These include a weaker-than-expected global growth, further escalation of geopolitical conflicts, worsening supply chain disruptions, adverse developments surrounding COVID-19 and heightened financial market volatility.
For 2022, in an environment of high input costs and improving demand, headline inflation is projected to average between 2.2% and 3.2%. Underlying inflation, as measured by core inflation, is also expected to trend higher during the year, averaging between 2.0 to 3.0%. Several key factors are expected to partly contain upward pressure on prices, namely the existing price control measures and the continued spare capacity in the economy. Nonetheless, the inflation outlook remains subject to commodity price developments, arising mainly from the military conflict in Ukraine and prolonged supply-related disruptions. The outlook is also contingent on domestic policy measures on administered prices
On headline inflation, BNM said that it moderated to 2.2% during the quarter (4Q 2021: 3.2%).
It said that it mainly reflects the smaller contribution from the dissipating base effect from lower domestic retail fuel prices last year, and the absence of the base effect from electricity tariff rebates implemented in 2020.
The Central Bank said that the core inflation increased to 1.7% during the quarter (4Q 2021: 0.8%) which reflects price adjustments amid the higher costs and improving demand conditions, with price increases being more noticeable specifically for food items due to supply-related factors such as higher global commodity prices.
On the exchange rate, BNM said that the ringgit depreciated by 0.7% against the US dollar in the first quarter of 2022 (YTD as at 11 May 2022: -4.7%), broadly in line with the movement of regional currencies (1Q 2022: -0.8%; YTD: -3.4%).
It said that this was due to the broad US dollar strength, driven by higher US interest rates, global risk-off sentiment given the conflict in Ukraine, and expectations of modest growth in China.
It said that the high commodity prices and Malaysia’s recovery prospects had also cushioned the downward pressure on the ringgit from these external factors. Going forward, while domestic financial markets are subject to periods of high volatility, spillovers to domestic financial intermediation are expected to be contained.
It said that Malaysia’s strong external position and resilient banking system enable the economy to withstand external shocks.
On Net Financing, BNM said that the grew by 4.5% (4Q 2021: 4.7%) amid lower growth in outstanding corporate bonds (4.6%; 4Q 2021: 5.4%). Outstanding loan growth was sustained at 4.4%.
It said that Business loan growth moderated to 4.3% (4Q 2021: 4.8%), reflecting lower growth in outstanding working capital loans amid continued high repayments growth.
Growth in working capital loan disbursements, however, remained strong during the quarter (21.2%; 4Q 2021: 32.8%) in line with the recovery in economic activity. For households, outstanding loan growth increased across most purposes (4.8%; 4Q 2021: 4.2%), with robust growth in loan disbursements (12.7%; 4Q 2021: 9.5%).
This reflects the continued demand for loans among households, particularly for the purchase of houses and cars. Household resilience continues to be supported by sound debt servicing capacity and healthy financial buffers at the aggregate level, with lending underpinned by prudent underwriting standards and loan affordability assessments by banks.
