News

By Danial Azhar and Rozanna Latiff

KUALA LUMPUR (Reuters) -Malaysia's economy expanded at its fastest rate in 18 months in the second quarter helped by stronger household spending, exports and investment, with the central bank forecasting full-year growth to come in near the upper end of its forecast range.

Gross domestic product grew 5.9% in the April-to-June period, data showed on Friday, accelerating from 4.2% in the first quarter and surpassing analysts' and early government estimates for a 5.8% rise.

Growth in the period was the quickest since the fourth quarter of 2022, when the economy expanded 7.4%.

On a quarter-on-quarter seasonally adjusted basis, GDP rose 2.9%, compared with a 1.5% rise in the January-to-March period, data from Bank Negara Malaysia (BNM) and the Statistics Department showed.

Full-year 2024 growth was expected to come in at the upper end of the central bank's forecast of 4%-5%, driven by stronger domestic and external demand, BNM Governor Abdul Rasheed Ghaffour said.

"Household spending will remain the anchor of growth for the rest of this year, with continued expansion in employment and income as well as larger policy support and...strong investment activities," he said.

In 2023, the economy had expanded less than expected, rising 3.7% amid weak global demand.

The ringgit currency is also expected to receive additional support in the coming months amid narrowing interest rate differentials between the United States and Malaysia, the governor said.

The ringgit has recovered from a 26-year-low against the U.S. dollar struck in February, and has now gained 3.3% so far this year.

Last month, the central bank held its key interest rate steady at 3.00%. It said on Friday that inflation would remain manageable even as it trended higher following diesel subsidy cuts in June.

Headline and core inflation averaged 1.8% in the first half of 2024, BNM said. It projects headline inflation will range between 2% and 3.5% for the year.

Analysts expect BNM to keep interest rates unchanged for the rest of the year, flagging the risk of higher inflation as Malaysia continues to pursue further subsidy cuts. The government has plans to adjust subsidies for RON95 fuel but has not yet said when the proposal will be implemented.

"We believe BNM will continue to remain vigilant in their conduct of monetary policy especially on the price front. They have maintained their inflation forecasts...which indicates some degree of uncertainties over the prospect of the country's inflation," Bank Muamalat Malaysia chief economist Mohd Afzanizam Abdul Rashid said.

Capital Economics said in a note that despite a better-than-expected performance, it still expected Malaysia to face a slowdown ahead amid declining commodity prices, inflation risks and a fading boost from tourist arrivals.