May 19, 2017 11:25 pm JST

Malaysia's economy grows at fastest pace in 2 years in Q1

Private investment and exports help push GDP growth to 5.6% annually

CK TAN, Nikkei staff writer

KUALA LUMPUR -- Malaysia's economy grew at a 5.6% annual pace in the January to March quarter, supported by private-sector spending and exports, the central bank said Friday.

That beat the median forecast for 4.8% growth by economists in a poll conducted by Nikkei Markets. Growth has been on the upswing in the Southeast Asian country since April 2016.

Private-sector investment, driven mainly by capital spending in the manufacturing and service sectors, grew 12.9%, compared with 4.9% growth in the final quarter of 2016. Consumption and spending by the public sector turned positive versus the previous quarter, growing by 7.5% and 3.2%, respectively.

By sector, growth in agriculture also recovered, resulting in higher crude palm oil production as the negative impact of the El Nino weather phenomenon tapered off. Growth was also recorded in services, manufacturing and construction. Mining grew modestly on lowercrude oil production.

Growth in exports, supported by demand for manufactured goods, was offset by increased imports of intermediate and capital goods. Even so, Malaysia still recorded a trade surplus of 18.9 billion ringgit ($4.4 billion).

"The economy is poised to register better performance this year," said Muhammad Ibrahim, the central bank governor, hinting that growth may come in at the higher end of the official forecast of between 4.3% and 4.8%.

Capital Economics raised its GDP forecast for Malaysia on Friday from 4.5% to 5.5% for 2017, citing global demand, a recovery in energy prices and a loose monetary policy that will continue to support growth.

Headline inflation, as reflected in the consumer price index, rose to 4.3% during the quarter due to higher fuel costs, rather than demand factors. The central bank said inflation will level off to between 3% and 4% for the full year.

It also said uncertainty in the global economy and volatility in foreign exchange markets are among the risks that continue to weigh on future growth. These external factors will be closely monitored by the bank's monetary policy committee, which recently held its benchmark interest rate at 3% on sustained economic growth.

Weiwen Ng, an economist at ANZ Research in Singapore, said sluggish real income growth and high household debt, at 88% of GDP, could constrain private consumption.

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