KUALA LUMPUR, July 22 ― A pickup in export orders and strong local demand helped boost business confidence among Malaysian manufacturers in the second quarter of 2014 but tougher times lie ahead, according to a survey by a local think tank.

The Malaysian Institute of Economic Research (MIER) said domestic demand continued to rise, with 30 per cent of survey respondents reporting an increase in new domestic orders in the second quarter ― double the number in the previous quarter.

Export orders were firmer due to increased demand from the US and EU, it added.

MIER executive director Dr Zakariah Abdul Rashid cautioned that the export orders may dip over the next quarter due to continued fragility of the US and European markets and the slowdown in China’s growth.

“Domestic demand is still important. Considering the external factors, though they are improving we cannot rely on in very much because their recovery is still fragile,” he said, referring to the US and European markets.

“In the US and EU, growth is still slow and China is still consolidating (its economy). When projecting the economy, you can’t be too optimistic. Good news is good news, but you must take it with some reservations,” he said.

MIER’s survey showed trouble in the tourism sector due to a decline in business for both hotel operators and travel agencies.

Zakariah noted that the decline ― which goes back to the fourth quarter of 2013 ― was likely tied to the security issues in the east coast of Sabah and the disappearance of Malaysia Airlines flight MH370, but does not think it will have a long-term effect on the sector.

On the country’s monetary policy, the institute says Bank Negara may need to consider a second interest rate hike to contain the inflation rate which has been rising since the third quarter of 2013.

MIER, however, stressed that this will depend entirely on how the business and consumer markets respond to the central bank’s quarter point rate increase.

The institute expects Malaysia’s gross domestic product to grow by 5.3 per cent this year, followed by between 5.5 and 6.0 per cent growth in 2015.