THE latest data on the performance of the Malaysian economy signifies a turning point in the sense that it has detached itself from the "economic booster effect" of those special measures undertaken when the economy was facing its worse challenges of the impact of the Covid-19 pandemic.
Malaysia's economy recorded a steady gross domestic product (GDP) number of 5.6 per cent in the first quarter of this year (1Q 2023), among the best economic performers in this region, beating Indonesia, Vietnam, Singapore, and even China. The number recorded is even better than the first quarter data of last year (1Q 2022) of 5 per cent.
In fact, the economic performance is much better than during the pre-pandemic era, notably in 2019, beating the number for all four quarters involved that year and the whole of 2019.
Looking from a quarter-on-quarter seasonally-adjusted basis, the economy still expanded by 0.9 per cent, compared with a contraction of -1.7 per cent in the fourth quarter 2022 (4Q 2022).
In the context of Malaysia, which is inching closer on achieving a high-income nation status in a few years to come, a GDP number in the range of 5 to 6 per cent seems appropriate and stable.
Less than 5 per cent points to a level which is below its potential level, where it has the potential to prolong the "middle-income trap" issue further, whereas above 6 per cent would mean the risk of overheating to the economy is getting higher.
Thus, as Bank Negara Malaysia (BNM) has foreseen this trend, the need to normalise the Overnight Policy Rate (OPR) seems crucial and hence, the 25 basis point hike recently.
There are, of course, other technical reasons for BNM to normalise the OPR rate in terms of the monetary policy perspective vis-à-vis other countries too, considering Malaysia is a small and open economy and well-integrated in the global supply chain.
In the 1Q 2023, domestic demand remained the big push for the economy, where private consumption contributed 5.9 per cent of the economy. This is to be expected as there was an improvement in the labour market in the said quarter while the inflation rate, both headline and core inflation, remained stable.
Although investment activity appears to be improving, where the gross fixed capital formation (GFCF) has expanded at 4.9 per cent, the worrying sign seems to be in the performance of the public sector, where public sector consumption contracted at 2.2 per cent. Even though the public sector investment grew at 5.7 per cent, the quantum is lower compared with the previous quarter, which was the last quarter of 2022.
Contraction in exports is also a concern, especially for an economic structure like Malaysia. On the supply side, all sectors expanded where both services and manufacturing as well as the construction sector recorded a stellar performance in the first three months of this year.
Looking in its entirety, crucial questions remain especially in terms of the direction of the economy moving forward.
First, whether the momentum can be sustained. It seems to me that the growth rate in the second quarter of this year would be less than what was performed in the first quarter of this year.
Without any clear economic narrative in the foreseeable future, the second half of this year and the years to come remain very challenging to the Malaysian economy.
Without any clear economic vision and long-term economic policies, especially after the Shared Prosperity Vision (SPV) 2030 was discontinued, with the expected worsening of the state of the global economy and the prolonged Russia-Ukraine geopolitical conflict, the Malaysian economy might potentially grow below its potential level.
We might even miss the growth target stipulated under the 12th Malaysia Plan (12MP) for this year and until 2025.
And, this leads to the second crucial question, which is the development of the people's economy: Income, education, health, jobs, etc.
Waging a war to end hardcore poverty is a noble one, but it is not sufficient. Many people are still suffering economically in the aftermath of the pandemic. The economic scarring is real for all, regardless of the income classification; everybody is affected. Thus, a new economic model is badly needed.
A new approach towards economic development is urgently needed, beyond merely macroeconomic data, or specifically GDP figure per se.
* The writer is associate professor at the School of Economics, Finance and Banking, Universiti Utara Malaysia
