Malaysia’s 1Q23 GDP grows by 5.7%, driven by domestic spending


Malaysia’s economy is estimated to have grown by 5.7% year-on-year in the first quarter of 2023 (1Q23), according to economists at CGS-CIMB Research.

The strong services sector and improvements in the labour market were key factors behind the growth, with distributive trade contributing 45.2% to the services index and growing by 10.1% in 1Q23.

“Based on the available data, which covers more than 80% of Malaysia’s GDP, we estimate that the economy expanded by 5.7% year-on-year (yoy) in 1Q23, softer compared to the 7.0% in 4Q22 but still relatively robust, in our view,” CGS-CIMB economists Nazmi Idrus and Mas Aida Che Mansor wrote in a report today.

Bank Negara Malaysia (BNM) is slated to release the 1Q23 gross domestic product (GDP) data tomorrow.

Although softer than the 7% growth in the previous quarter, the economists still view the 1Q23 figure as relatively robust.

The economists believe this strong growth provides room for the central bank to tighten its monetary policy further, with a likely 25 basis points rate hike in 2H23.

BNM resumed its monetary tightening cycle, and the CGS-CIMB economists think the robust 1Q23 GDP performance, along with expectations of further labour market recovery, could have contributed to the central bank’s decision. 

They maintain their assumption of a 25 basis point rate hike in the second half of this year, which would lift the overnight policy rate (OPR) to 3.25% by the end of 2023.

The report said the Index of Services (IoS) – a measure of private services performance – expanded by 8.8% in 1Q23, supported by wholesale & retail trade, food & beverages, and accommodation segments.

However, it said that the IoS contracted by 3% quarter on quarter due to seasonal effects. 

Manufacturing output grew by 4.1% in March, with domestic-oriented industries such as F&B production, non-metallic mineral products, and motor vehicles supporting the sector’s growth.

Export-oriented industries like E&E, machinery, petroleum, and chemical products also backed the increase in manufacturing output.

The agriculture sector likely softened in 1Q23 due to slower growth in CPO production, while rubber production contracted at a smaller rate than in the previous quarter.

The mining index moderated to 2.1% YoY, while construction work done rose 9.4% YoY in 1Q23, driven by the non-residential segment and civil engineering.