By Devayani Sathyan

BENGALURU, (Reuters) – Malaysia’s economy grew at a faster pace than expected in the third quarter. This was due to stronger demand after the relaxation of COVID-19. However, a Reuters poll revealed that a slowdown in China could lead to significant negative consequences.

The median prediction of 18 economists predicts that Southeast Asia’s third-largest economic sector will have experienced a 4.0% increase over the three-month period ending in March. That is quicker than the 3.6% gain in the prior quarter.

The forecasts for the annual growth of gross domestic product (GDP), due to be published on May 13th, range from 2.5% to 5.7%.

Chua Han Teng from DBS, an economist said that Malaysia’s 1Q22 growth was probably due to stronger domestic demand, driven by services and private consumption.

“Despite the Omicron wave, relaxed virus containment measures led to an increase in services activity.

Together with a stronger export-led acceleration for manufacturing in March this suggests that foreign trade is still a strong growth engine for a country so rich in natural resources, such as oil, timber and palm oil.

After Indonesia, the top palm oil producer, temporarily stopped shipments to Malaysia last month to stem rising prices for domestic cooking oils, Malaysian demand is expected to increase.

Malaysia has seen a sharp improvement in its economic performance due to stronger commodity prices. Domestic demand is still strong and exports will continue to drive growth.

According to a separate Reuters poll, growth is expected to average 6.1% to 5.0% in this year, and to reach its peak level by 2023.

The domestic economy will expand after activities are restored from disruptions caused by COVID. However, China’s significant slowdown could pose a bigger risk for the second largest palm oil exporter in the world.

China is Malaysia’s most important trade and investment country.

China’s slower growth is a threat to APAC as it has been the main engine for growth. The export and import high-value intermediate goods to China… will have a significant impact on Malaysia’s manufacturing sector,” said Denise Cheok of Moody’s Analytics.

Malaysia is not directly exposed to Russia or Ukraine but the risks of inventory running low increase as the conflict continues.