Malaysia's economy likely picked up in Q1

Malaysia's economic growth likely gathered pace in the last quarter, driven by stronger demand following a relaxation of COVID-19 measures, but a prolonged slowdown in China could have significant knock-on effects, a Reuters poll found.

Southeast Asia's third-largest economy is predicted to have expanded 4.0 per cent in the January-march quarter compared with the same three-month period a year earlier, according to the median forecast of 18 economists, faster than the 3.6 per cent increase in the preceding quarter.

Forecasts for annual gross domestic product (GDP) growth, due to be released on May 13, ranged from 2.0 per cent to 5.7 per cent.

"Malaysia's growth improvement in 1Q22 was likely underpinned by stronger domestic demand driven by private consumption and services activities," said Chua Han Teng, economist at DBS.

"Relaxed virus containment measures helped by high vaccinations despite the Omicron wave translated to an uptick in services activity."

That, along with an improved export-led acceleration in manufacturing in March, suggests foreign trade remains a growth engine for a country rich in natural resources such as oil, natural gas, timber, palm oil and cocoa.

Demand for Malaysian palm oil is set to rise after top producer Indonesia temporarily banned shipments last month in a bid to tame soaring domestic cooking oil prices.

Malaysia's economic performance has improved sharply on stronger commodity prices and domestic demand and still-buoyant exports are expected to help drive growth this year and next.

Growth is forecast to average 6.1 per cent and 5.0 per cent this year and in 2023, respectively, according to a separate Reuters poll published last month.

While the domestic economy is expected to expand as activities recover from the disruption caused by COVID, a significant slowdown in China poses a greater risk to the world's second-largest palm oil exporter.

China is Malaysia's biggest trade and investment partner.

"As the engine of growth for the APAC region, China's slowing growth poses risks to the rest of the region. In particular, the export and import of high-value intermediate goods with China ... will affect Malaysia's key manufacturing sector," wrote Denise Cheok, economist at Moody's Analytics.

"While Malaysia has limited direct trade exposure to Russia and Ukraine, the risk of inventories running low rises as the conflict drags on."