By Ying Xian Wong

KUALA LUMPUR--Malaysia's economy showed signs of resilience in the first quarter of the year, with exports growing against a still uncertain global economic backdrop.

Advance estimates showed a 3.9% increase in gross domestic product growth for the first three months of the year, supported by stronger activity across all main sectors of the economy.

"The economic performance in this quarter was spearheaded by the services sector," said Malaysia's chief statistician, Mohd Uzir Mahidin. Manufacturing returned to positive territory after contracting in the final quarter of last year, while construction growth surged.

A separate release on Friday showed that exports increased by 2.2% in the first quarter, driven by stronger trade activity with countries with which Malaysia has free-trade agreements.

The performance indicates a gradual pickup in Malaysia's trade-reliant economy, which slowed in 2023 amid weak external demand. Signs of solid growth may offer Malaysia's central bank room to continue holding policy rates steady, as it watches to see how pressures on inflation on the ringgit continue to unfold.

While initial quarterly growth estimates from the Department of Statistics slightly undershot economists' expectations, they are comfortably above the 3.0% pace seen in the final quarter of last year. Economists in a Wall Street Journal poll had projected growth of 4.0% for the first quarter of 2024.

Malaysia notched weaker-than-expected growth in 2023, as the country grappled with a tough global economic environment that lead to prolonged weakness in external demand.

The improvements in trade data at the start of 2024 bode well for the country's economic prospects.

Trade, export and import prints were all at record highs in the first quarter, the Ministry of Investment, Trade and Industry said, citing recovering global trade. Exports of iron and steel products, machinery, equipment and parts helped drive the growth, which was supported by demand in Asean markets as well as in the U.S. and Japan.

Though exports declined in March, marking a second month of contraction, the print was better than economists had expected. Malaysia's exports dropped 0.8% from a year earlier to 128.64 billion ringgit ($26.88 billion) in March. Economists in a WSJ poll tipped a fall of 2.2%.

Many economists tentatively expect a stronger showing by Malaysia's economy this year, with a cautious yet hopeful outlook.

Friday's first-quarter GDP print triggers an upgrade to Goldman Sachs strategists' forecast for full-year growth. In a note, they said they now see the economy growing 3.5% versus the 3.1% projected previously.

OCBC senior Asean economist Lavanya Venkateswaran projects a pickup in economic growth in future quarters, aided by sustained public sector infrastructure investments and stable household spending. Still, Malaysia will have to contend with external headwinds, as well as the potential inflationary impact of the winding back of fuel subsidies.

A rebound in global manufacturing activity, particularly in tech, offers a tailwind.

Muhammad Saifuddin Bin Sapuan, an economist at Malaysian investment bank Kenanga, thinks export growth will pick up in the second half of the year, mainly fueled by the technology sector's likely upcycle and the gradual recovery of China's economy. China is a key trading partner for Malaysia.

Barclays economists have kept their Malaysia economic growth estimate at 4.1% for 2024, near the lower end of the central bank's 4.0%-5.0% forecast range.

While a global economic slowdown could weaken external demand, that should be offset by the gradual upswing in tech, said Brian Tan, senior regional economist at Barclays.

"The latest trade data suggest the worst may be over for the electrical and electronics export segment," he wrote in a note.

Write to Ying Xian Wong at

(END) Dow Jones Newswires

04-19-24 0446ET