KUALA LUMPUR: Malaysia's economy could see its strongest quarterly pace of expansion since the third quarter (Q3) of 2017, excluding the Covid-19 period, in the second quarter of 2024.
Economists said the country might have grow between 5.8 per cent and 6.0 per cent in Q2 2024, a solid print that could lead to the official full-year forecast of 4.0-5.0 per cent becoming conservative.
The expected growth will be supported by a sustained improvement in the electrical and electronics products (E&E), accelerated manufacturing growth and foreign direct investments.
OCBC senior Asean economist Lavanya Venkateswaran said the firm expected Q2 2024 to record similar figure as the advance estimate of 5.8 per cent by the Department of Statistics Malaysia.
Bank Negara Malaysia is due to release the official gross domestic product (GDP) number for Q2 on Friday.
"This (5.8-6.0 per cent) nonetheless is solid print and will likely bring the average first half GDP growth to 5.0 per cent year-on-year (YoY). This is at the top end of the government's full-year forecast range of 4-5.0 per cent.
"A sustained improvement in E&E exports, solid private and public sector investment spending bolstered by the government's medium-term economic development agenda and resilient household spending can help underpin strong growth momentum in the second half of 2024 (1H24).
"It remains to be seen, however, if the robust growth outturn of 5.8 per cent YoY in Q2 2024 can be replicated in the second half of the year," Venkateswaran told Business Times.
IDEAS Malaysia economist and assistant research manager Doris Liew said given the current economic indicators, the projected GDP growth of 4-5.0 per cent appears conservative.
The advanced GDP estimate of 5.8 per cent for 2023, coupled with anticipated robust expansion in the semiconductor and consumer sectors during Q3, suggests a higher growth trajectory, Liew added.
"Strong consumer spending of 6.8 per cent in Q2, alongside accelerated manufacturing growth of 5.9 per cent in June, points to a potential Q2 GDP within the 5.8 per cent to 6.0 per cent range.
"This upward trend will likely persist in the second half of the year. The ongoing global semiconductor boom is expected to provide sustained tailwinds for Malaysia's downstream industries.
"Additionally, the upcoming school holiday period and the peak tourist season in the second half of the year will likely inject a significant boost into consumer spending," she added.
Considering these positive factors, Liew said a full-year GDP between 5.0 per cent and 5.5 per cent seems more probable.
Liew added that the upcoming 2025 Budget is anticipated to introduce economic stimulus measures, which could further enhance overall economic sentiment and contribute to surpassing the initial growth projections.
Bank Muamalat Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid viewed that Malaysia's GDP could hit 6.0 per cent following data in Q2 2024 that indicated better growth than the previous quarter.
He noted that the Index of Services, Industrial Production Index, crude palm oil production and Construction Work Done grew 6.7 per cent, 4.5 per cent, 15.9 per cent and 20.2 per cent respectively.
"Not to mention, the labour market is already in full employment status whereby the unemployment rate remains steady at 3.3 per cent in the 2Q (1Q: 3.3 per cent) with the number of unemployed individuals declining to 557,800 people in the Q2 2024 versus 586,900 in the Q1 2023.
"In that sense, the Q2 2024 might come in higher than the first quarter and if such momentum can be sustained, the official forecast of 4.0 per cent to 5.0 per cent might need to be revisited higher," he said.
Afzanizam, however, said the higher in import growth would limit the GDP accretion with nominal import was seen growing by a double-digit pace of 15.0 per cent in Q2 2024 versus 12.5 per cent in the previous quarter.
Among the factors that will push GDP to 6.0 per cent are implementation of the infrastructure projects, rising inflows and execution of foreign direct investments along with stable labour market condition and cash transfers programme, he added.
Meanwhile, economist Dr. Geoffrey Williams said the advanced estimates would need a revision as there is escalating geopolitical risk and external factors outside of the control of Malaysian policymakers that affect investments such as the Tesla episode.
"So far the advance estimates are positive but they can be revised. They make the 4.0 per cent-5.0 per cent official target more likely but overall we are still cautious and our expectation is for a final outcome of 3.5-4.0 per cent.
"Two key changes are the contraction in net trade which will add less to overall GDP this year compared to last year. The EPF Akaun Fleksibel withdrawals are already around RM11 billion and might also reach RM25 billion which will push GDP up," he added.
William said the economy is more stable but at a lower underlying rate of growth due to the damage of Covid-19 and the policies of previous governments.
"The challenge is structurally to raise incomes, cut wastage, leakages and corruption, push on subsidy rationalisation and free-up the economy to make it more agile, competitive and innovative," he added.