Maintaining its forecast of a negative 4% contraction for the first quarter (1Q), the research house expected the economic turnaround to be gradual, and positive data to only be evident in late 3Q or early 4Q this year.

"But we are more bullish now. We expect a stronger final quarter recovery, with GDP growing at 2%, after -3.8% in 2Q and -2.2% in 3Q. Consequently, we maintain our full-year GDP estimate at -2%, without any worst-case scenario," it said in a report today.

AmResearch said exports moderated for the second consecutive month, registering a slower decline of 15.6% in March, after a contraction of 16% year-on-year (y-o-y) in February and a decline of 27.8% in January.

It said performance was most impressive in three months, with exports rising 10.3% month-on-month (m-o-m), reflecting higher demand for electrical and electronic (E&E) goods (+16%); crude oil (28.8%) and crude palm oil (13.6%).

AmResearch said in particular, improvement in export of E&E goods was in line with the rebound in global chip sales for March, especially from US and China. The rebound was reflected in the Semiconductor Industry Association's data, which showed an increase of 3.2% in March.

Month-on-month, it said all of Malaysia's major trading partners, except Japan, posted gains  in March, suggesting stabilising signs in overseas demand.

"Given the trend, we expect rate of declines to continue tapering off from now on, given a weaker currency as well as improvement in commodity prices recently as well as stronger signs of recovery in China and India.

"This was in line with recent improvement in terms of pace of drop in exports: Singapore (-17% in March versus -24% in February), South Korea (-19% in April versus -22% in March), and Taiwan (-34% in April versus -36% in March)," AmResearch said.

The research house said in tandem with the export data, the IPI also registered a slower decline of 14.4% y-o-y in March, compared with a decline of 14.6% yoy in February. Output had expanded by 6.2% mom for March.

AmResearch said the manufacturing sector posted a 19.6% y-o-y contraction in March (18.5% decline in February). But production activity was even stronger on a mom rate of 4.1% in March, suggesting the beginning of restocking by manufacturers.

"Overall, we think the manufacturing sector's y-o-y declines should gradually taper off in the coming months, with positive growth by August or September, latest.

"Expectations should be backed by regional recovery in demand for Malaysian-made E&E goods, especially from  the United States and China."

AmResearch said domestic demand conditions were set to improve in the coming months, benefiting from the positive wealth effect of the recent rally of Bursa Malaysia as well as speedier implementation of projects under the stimulus programmes.

It expected the ringgit, after hitting its lowest of RM3.72 per US dollar on March 2, 2009, to regain strength to close at RM3.64 to the dollar by the end of 1Q.

AmResearch said given anticipation of steady interest rates in the short-term, it forecast the ringgit to remain rangebound between RM3.50 and RM3.60 to the US dollar for the rest of the year.