This article first appeared in The Edge Financial Daily on May 16, 2017

KUALA LUMPUR: Higher exports are expected to drive up gross domestic product (GDP) growth in the first quarter of 2017 (1Q17), according to some economists, who are forecasting between a 4.8% and 4.9% year-on-year rise.

In comparison, the previous quarter or 4Q16 recorded a GDP growth of 4.5%. A year ago, in 1Q16, GDP growth was 4.2%.

RAM Rating Services Bhd economist Kristina Fong, who expects Malaysia’s GDP growth to come in at a robust 4.8%, said this would be mainly premised on the sustained upward momentum in external demand which has provided the main boost to growth amid resilient domestic demand.

“The improvement in exports is attributable to both a broad-based increase in demand across regions as well as significant upside from the demand for investment-type goods, mainly due to the stronger growth of industrialised economies,” she said in a statement yesterday.

Fong noted that export-oriented industries are also exhibiting more favourable output growth trends, as opposed to the more volatile and lower growth patterns displayed by their domestic-oriented counterparts.

“More specifically, consumer-related output growth has been lagging the recovery momentum of the other domestic-led sectors,” she said.

Though there is a marked improvement in labour market conditions compared with the slack in the last two years, she said retail sales growth is still heavily reliant on non-durables or necessities-type consumption, “which has still not reverted to the growth rates of the pre-GST period”.

“Although inflation remains elevated, we expect it to taper off in the second half of 2017, as the low-base effects from the transport component the previous year become less pronounced. Hence, we do not expect inflation to be a key determinant in derailing the resilient growth momentum of private consumption this year,” said Fong.

She added that private investment growth will remain supported by the continuation of infrastructure projects, although some upside may also stem from the return of some foreign investment, which has traditionally led the trade cycle.

“As such, this will be a welcome spillover effect from the continued strengthening of our export growth. On the whole, our full-year GDP growth forecast remains at 4.5%,” said Fong.

Standard Chartered Bank Singapore head of Asean economic research Edward Lee forecast 4.9% GDP growth in 1Q17 for Malaysia.

“Exports picked up in early 2017 on strong demand in the region, driven primarily by China’s inventory rebuild as well as higher commodity prices,” he said in a note yesterday.

The Department of Statistics Malaysia is expected to release the 1Q17 GDP data on Friday.