Socio-Economic Research Centre's Lee Heng Guie said he anticipates 2Q GDP growth to come in at 4.4%.
PETALING JAYA: Gross domestic product (GDP) growth for the second quarter (2Q) is anticipated to come in slightly below the Statistics Department’s advanced estimates of 4.5%, mainly dragged by challenges on the exports front.
According to economists surveyed, domestic demand is poised to hold up with some government support and the recent overnight policy rate (OPR) cut amidst the more difficult external environment with uncertainties to international trade flows.
While US tariffs with Malaysia and the Asean region have already been set, there are still other upside risks factors to the tariff rate especially, for Malaysia.
Factors here include its close association with the BRICS partnership and the announced intent to migrate the semiconductor supply chain to the United States, to which US president Donald Trump had earlier plainly and clearly stated.
Chief Economist at Ambank Group, Firdaos Rosli, said its initial projections for the 2Q GDP growth were initially in line with advance estimates of 4.5% but considering latest developments, this has been lowered to 4.3%.
“This is due to data points for the services sector, construction and trade – we think that growth will come in a bit lower than advanced estimates.
“We notice there has been resilient spending that continues to drive growth but the front loading effects due to US tariffs are starting to take the bite now.
“Front loading effects had dissipated quite drastically whereby in May and June the exports growth had recorded a contraction – this might continue in the coming months,” he told StarBiz.
On the domestic front, Firdaos said demand is still holding up with loans growth relatively stable although there is some moderation in terms of loan applications.
“But loans growth among the small and medium enterprises (SMEs) are still high which indicates that the business community is still confident with the business environment in Malaysia relative to external challenges at the moment.
“We think domestic demand will still be resilient on government support and handouts such as the Program Sumbangan Tunai Rahmah and the RM100 cash assistance for all,” he noted.
While there are some signs of moderation in the domestic front, this is anticipated to still hold up for now and is also supported by the lower OPR.
“The United States economy in the first half of this year has moderated and this has a strong correlation to Malaysia.
“As the US slows, so will Malaysia and this will probably feed in to the narrative in to the third and fourth quarter of this year. We are still holding on to full year GDP growth of 3.8%,” Firdaos said.
“It appears that 1Q will probably be the best performing quarter of this year, based on the present circumstances.
“Bank Negara Malaysia’s projection is for GDP growth to be at 4% to 8%. If growth is 4.3% in 2Q that means growth in the second half will have to be at least higher than 3.6%,” he added.
Socio-Economic Research Centre executive director and economist Lee Heng Guie said he anticipates 2Q GDP growth to come in at 4.4%, lower than advanced estimates.
He said some key points that will influence this figure include the manufacturing sector which has slowed down, while mining continues to decline but the construction industry is still holding up with double digits growth.
Meanwhile, Lee said the services sector is also being buoyed by growing tourism activities and their spending receipts as well.
“In the second half we will be watching the exports sector – due to the ongoing uncertainties from tariffs and I believe the actual impact due to the tariffs will be in 3Q.
“Exports will continue to be a drag unless it’s a surprise, which is unlikely. The second half’s GDP growth will hopefully come in at 3% to 4%.
“For the full year GDP forecast, I’m expecting it to be at 4%,” Lee told StarBiz.
Bank Negara Malaysia had last month revised its GDP estimates lower and Lee says this could be why the OPR was preemptively cut.
“Next year, there will be the impact of the still delayed tariff between US and China and this effect will continue into the first half of next year.
“This is why it is crucial for the government to ensure that Budget 2026 will continue to hold up domestic demand spending as there are building risks in the exports sector,” Lee said.
On Tuesday, the United States and China extended their tariff truce for another 90 days, which if they did not, would have resulted in triple-digit percentage duties that would have been imposed on each other’s goods.
“The government should keep costs manageable for businesses – hopefully the soon-to-be-announced budget will give some tax concessions to ease the cost of doing business especially for the SMEs.
“Sentiment here for the second half will be cautious at best,” he added.
Meanwhile, BIMB Securities Research anticipates GDP was likely to have expanded by 4.3% for the 2Q compared to 4.4% in 1Q.
“Demand-side indicators in 2Q were rather mixed. Private consumption, the key growth driver, is expected to have moderated, with retail sales growth easing to 5% from 6.8% in 1Q, the slowest pace in six quarters.
“The Index of Services also softened slightly to 5% from 5.2% in the previous quarter. Despite this moderation, labour market conditions remained firm, with the unemployment rate edging down to 3%, the lowest since April 2015,” BIMB Research said.
It noted the absence of major festivals during the quarter, which when combined with fading effects from February’s minimum wage hike and the civil servant salary adjustment, would have likely tempered consumption growth.
