Gross domestic product rose 6.2% in the three months through March 31 from a year earlier, after climbing 5.% in the final quarter of 2013, the central bank said in a statement in Kuala Lumpur on Friday. The median in a Bloomberg News survey of 22 economists was for a 5.7% increase.
A revival in global demand, led by more confident American households and businesses, is spurring orders for Malaysian goods while wage growth and capital spending in the Southeast Asian economy fuel consumption. Bank Negara Malaysia signalled this month it may need to adjust the degree of monetary policy accommodation to avoid a build-up in financial and economic imbalances, spurring bets it will raise borrowing costs.
''It's a simple case of both domestic demand and external demand driving growth, unlike the last two years where its running on a single engine,'' Suhaimi Ilias, chief economist at Maybank Investment Bank in Kuala Lumpur, said before the release.
The ringgit has strengthened about 1% this month against the dollar. The FTSE Bursa Malaysia KLCI Index of shares rose 0.2% on Friday. Malaysian interest-rate swaps are pricing in a 50 basis-point increase in borrowing costs in the next year, data compiled by Bloomberg show.
GDP may rise 4.5% to 5.5% in 2014, the central bank said in March, widening the range from an earlier forecast of 5% to 5.5%. The economy grew 4.7% last year.
The central bank held the overnight policy rate at 3% for an 18th straight meeting on May 8, even as it joined the Philippines in signalling a readiness to contain threats to financial stability.
Higher fuel prices and electricity tariffs have driven inflation in Southeast Asias third-biggest economy to the fastest in more than two years. Consumer prices rose 3.5% in March from a year earlier, matching the fastest pace since June 2011. The central bank forecasts price gains of 3% to 4% this year.
Services rose 6.6% in the three months through March from a year earlier after climbing 6.4% in the fourth quarter, Friday's report showed. Construction gained 18.9% last quarter, while manufacturing grew 6.8%.
Net exports climbed 14.9% in the first three months from a year earlier. Private consumption growth rose 7.1% last quarter.