Corporate pessimism regarding export demand and domestic production was largely dispelled in the first quarter of 2011, according to the business conditions index published by the Malaysian Institute of Economic Research (MIER). Three successive quarters of declines meant that the index fell just below 100 points in October-December 2010, but it bounced back strongly in the first quarter of 2011, ending the period at 113.3 points. (A reading below 100 points implies a contraction.) Companies reported a drop in stocks in January-March, but sales and new export orders were up on the previous quarter. Firms now plan to expand production over the next three months.

By contrast, consumers became more cautious in the first quarter of 2011 as concern over rising prices mounted. MIER's consumer sentiment index dropped by nine points to 108.2, its lowest level for six quarters. Sentiment has been positive since the second quarter of 2009. Consumers taking part in the quarterly survey now say that they plan to reduce their spending, as they are less optimistic about their finances and employment prospects.

The latest data from the external and manufacturing sectors paint a mixed picture of the economy's health. The value of merchandise exports surged by 10.7% year on year in February. The increase was largely attributable to a jump in shipments of electronics and electrical products (E&E), which increased by 7.5%, as well as to high global commodity prices. Malaysia is a beneficiary of high global commodity prices, being an important exporter of fuels (particularly liquefied natural gas, or LNG), palm oil and rubber. In 2010 exports of agricultural and mining commodities combined accounted for 20% of total exports, compared with 12% in 2000. Given the recent upward trend in global prices, these categories of goods are likely to account for an even larger share of total exports this year. Despite lower volumes, in February exports of palm oil surged in value terms by 21.9% year on year, while LNG exports jumped by 27%. Malaysia's production of crude oil is slowly declining, with less being exported and more retained for processing. The value of crude petroleum exports dropped by 33% year on year in February, while exports of petroleum products soared by 78.3%.

The export strength of E&E was not evident in production data for February, which showed sectoral output contracting by 3.7% year on year, following a drop of 7.4% in January. The combined value of production in the commodity-based sector of petroleum, chemical, rubber and plastic products is now larger than the value of E&E production. Separately, the sectors that are most closely linked to the current boom in domestic investment and construction are non-metallic mineral products, basic metals and fabricated metal products. The pace of output growth in these three sectors combined quickened to 26.3% year on year in February, from 16.9% in January. In the manufacturing sector as a whole, production was up by 7.9% in February. Along with a fall of 0.7% in mining and near-stagnation in electricity output, this lifted the rate of year-on-year growth in total industrial production in February to 5%, its fastest since September 2010.