By Yantoultra Ngui

KUALA LUMPUR, Malaysia--Malaysia's economy grew at its fastest pace in two years in the first three months of 2017, powered by strong domestic demand, higher exports and a rise in manufacturing activity.

Gross domestic product rose 5.6% in the three months ended March 31 from a year earlier, Bank Negara Malaysia said Friday. The pace of growth was the fastest in two years and marked the third consecutive quarter of growth. In comparison, Malaysia posted GDP growth of 4.5% in the fourth quarter of 2016.

On a sequential basis, a closer measure of the economy's recent momentum, Malaysia's economy grew 1.8% on a seasonally adjusted basis in the latest quarter.

"We expect growth to be sustained," Bank Negara Malaysia Governor Muhammad Ibrahim said, adding that the central bank is still keeping its GDP projection at between 4.3% and 4.8 % for full year of 2017.

"But what we have seen over the past three months is the strong growth in private investment and exports sector -- now if these two components, as we move forward, show strong numbers, we will be seeing growth at the higher end of our projection," he added.

An upturn in data from Southeast Asia's third-largest economy since the start of 2017 has eased concerns about growth, which had been hit by weakness in oil prices since mid-2014. Figures released since January not only showed stronger exports, but growth in industrial production.

Gross exports jumped 21.4% in the first quarter ended March from a rise of 2.8% in the previous quarter, driven by broad-based expansion in manufactured and commodity exports, stronger demand and higher commodity prices, according to Bank Negara Malaysia.

Private investment surged 12.9% in the January-March period from an increase of 4.9% in the previous quarter, lifted by capital spending in the services and manufacturing sectors as external trade performance improved, the bank added.

The services sector, accounting for more than half of Malaysia's GDP, expanded 5.8% in the first quarter compared with growth of 5.5% a quarter earlier, according to Bank Negara Malaysia.

Manufacturing activity grew 5.6% in the first quarter compared with a 4.7% increase in the previous quarter. The construction sector gained 6.5% in the January-March period compared with 5.1% gains in the previous quarter, data from the bank showed.

The agriculture sector grew 8.3% during the first quarter, reversing a contraction of 2.5% in the previous quarter. Private-sector consumption expenditure increased 6.6% in the quarter from an increase of 6.1% in the previous quarter, according to the department's data.

1st Qtr 4th Qtr

Gross Domestic Product +5.6% +4.5%

Manufacturing +5.6% +4.7%

Services Sector +5.8% +5.5%

Mining Sector +1.6% +5.0%

Agriculture Sector +8.3% -2.5%

Construction Sector +6.5% +5.1%

Private Sector Consumption +6.6% +6.1%

Write to Yantoultra Ngui at yantoultra.ngui@wsj.com

(END) Dow Jones Newswires

May 19, 2017 01:58 ET (05:58 GMT)

Copyright (c) 2017 Dow Jones & Company, Inc.