The pace of economic growth in Malaysia likely increased in Q1 this year due to an acceleration in exports and tourist arrivals, helping to mitigate the decline in consumer spending, according to Mizuho Bank.

GDP may have increased 3.9% between January and March over the previous year, compared to a 3.0% year-on-year growth in Q4 2023, Mizuho stated.

Malaysia is set to publish its advance GDP estimates later this week and the full data on 17th May.

"Signs of external demand for manufactured goods are certainly encouraging. However, we remain relatively conservative on the magnitude of growth, as the manufacturing sector as a whole still underperforms the overall industrial sector," Mizuho went on to add.

In recent quarters, Malaysia's economy, which ranks as the third largest in Southeast Asia, has experienced a slowdown. Most recently, it contracted by 2.1% quarter-on-quarter on a seasonally adjusted basis, primarily due to the shrinking manufacturing sector and moderated household spending, The Edge Malaysia reports.

However, policymakers remain optimistic that domestic demand will stay robust, supported by the ongoing technology upcycle and improved global trade conditions, which are expected to keep Malaysia's export-oriented factories operating smoothly.

Furthermore, Mizuho noted that monthly industrial production data suggests promising indications that the decline in electrical and electronics products has reached its lowest point. They highlighted that average exports and imports of manufactured goods in January-February showed acceleration on a volume basis, indicating positive momentum in the sector

That said, the bank warned that domestic pressures "warrant a watchful eye" as industrial production growth in the food and beverages sector had sharply moderated in recent months, suggesting potential pressure on consumer budgets.

"Retail sales have been trending downwards as consumer confidence falls," yet a rise in tourist arrivals and expenditures during the Lunar New Year period could help to boost the services sector, Mizuho stated.

Moreover, Q1 this year could also be when the effects of visa-free entry for Chinese tourists "start to show," Mizuho added.