KUALA LUMPUR - Malaysia's economy contracted less sharply in the first quarter as domestic spending improved along with external demand in spite of a recent spike in coronavirus cases.

The economy shrank 0.5% over January-March from a year earlier, down for a fourth straight quarter, central bank data showed on Tuesday. It was better than the 2% contraction forecast in a Reuters poll and a 3.4% fall in the fourth quarter.

"We expect GDP growth to remain within the projected 6%-7.5% this year," Bank Negara Malaysia Governor Nor Shamsiah Mohd Yunus told a virtual news conference.

Malaysia's economy fell 5.6% in 2020, its worst annual performance since the Asian financial crisis, as the government imposed strict movement and business curbs over most of the year to contain the spread of COVID-19. 

While the economy is broadly expected to rebound this year, economists have warned that expansion could be curtailed due to a surge in cases that has led to a reimposition of restrictions.

The government declared a month-long nationwide lockdown on Monday amid a fresh spike in cases that health authorities have said could be related to new, more infectious coronavirus variants. 

Malaysia has reported over 444,000 total infections as of Monday with 1,700 deaths, the third highest tally in the region behind Indonesia and the Philippines.

Nor Shamsiah said the latest round of curbs will weigh on growth, but expects it to be "less severe" compared to the previous lockdown in the first quarter as most economic activities will be allowed to remain open.

"The path of recovery will be gradual and uneven across economic sectors. It may also be we will encounter speed bumps along the way. However...our assessment is for the economy to continue to recover in 2021."

Over 1.1 million people have received at least one dose of a COVID-19 vaccine as of Sunday, according to health ministry data.

Last week, the central bank left its policy rate at a record low of 1.75%, as it sees a "less severe" effect on the economy from the latest round of lockdown measures and on expectations that resurgent global demand and domestic spending would drive economic recovery. 

Malaysia's exports in March surged 31% on year, its quickest pace in nearly four years. 

(Reporting by Joseph Sipalan; additional reporting by Rozanna Latiff; Editing by Jacqueline Wong) ((Joseph.Sipalan@thomsonreuters.com; +60394929425; Reuters Messaging: joseph.sipalan.thomsonreuters.com@reuters.net))