May 18, 2017 / 3:52 AM / 3 months ago

Malaysia's solid exports, demand likely spurred faster first-quarter growth

A taxi driver waits for customers in the main shopping district of Kuala Lumpur, Malaysia February 17, 2016, a day ahead of GDP results.Olivia Harris

KUALA LUMPUR (Reuters) - Malaysia is expected to report on Friday that its pace of economic growth picked up in the first quarter, thanks to surging exports and resilient domestic demand.

A strengthening economy is pivotal for Prime Minister Najib Razak, who is widely expected to call early polls this year amid concerns that rising living costs could cut support for his long-ruling coalition.

The median forecast in a Reuters poll of 12 economists was for 4.8 percent annual growth in January-March, up from 4.5 percent the previous quarter.

If the pace is 4.8 percent, January-March will be the best period since the second quarter of 2015.

Exports from Southeast Asia's third-largest economy rose strongly in early 2017, aided by China's push to rebuild inventory and higher commodity prices, Standard Chartered said in a May 12 research note.

Malaysian industrial production "was resilient in Q1, with the manufacturing sector growing 5.6 percent y/y versus 5.0 percent in Q4, on the back of robust demand for electronics," the bank said.

March exports surged 24.1 percent from a year earlier, slowing just slightly from the 26.5 percent pace set the previous month and almost double the 13.6 percent expansion in January.

Malaysian growth will also likely continue to get a boost from domestic demand, plus increased government revenue from higher global oil prices, Moody's Investors Service said last week.

"Private consumption remained robust thanks to the sustained low interest rate environment and the flow-on from upbeat global demand," Moody's said.

STRONGER RINGGIT

The ringgit currency MYR= has strengthened about 3.7 percent against the dollar this year, after a protracted slump partly caused by poor global demand for Malaysian oil and commodities.

Capital outflows hit a record in November-January, when foreign investors divested their holdings of government bonds to the tune of 27.9 billion ringgit ($6.46 billion).

Analysts attributed the capital flight to the Malaysian central bank's decision to clamp down on offshore trade of the ringgit - a move that Bank Negara Malaysia insists has helped stabilize the currency.

Pressure on the ringgit "should be balanced for now", as Malaysia has sustained its current account surplus and reduced its portfolio outflow risks, said Vaninder Singh, Asia economist for NatWest Markets.

"Our read of the portfolio inflows data suggest that most real money funds have already turned underweight – implying whatever money was looking to exit, already has," he wrote in a note.

($1 = 4.3180 ringgit)

Reporting by Joseph Sipalan; Editing by Richard Borsuk

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