The economy expanded 4.9% in annual terms in the second quarter, up from the first quarter’s 4.5% year-on-year acceleration and above market expectations of a 4.8% expansion. Meanwhile, on a quarterly basis, the economy expanded 1.0% in Q2, down slightly from the 1.1% increase recorded in Q1.
The second quarter’s year-on-year acceleration was chiefly driven by a stronger external sector, with net exports contributing 1.4 percentage points to growth in Q2, up from the 0.9 percentage point contribution in Q1. Imports of goods and services fell 2.1% (Q1: -1.4% year-on-year), while exports expanded 0.1% as in the first quarter.
On the domestic side, the deterioration in gross fixed capital formation moderated in the second quarter (Q2: -0.6% yoy; Q1: -3.5% yoy) on a revival in crucial infrastructure projects. Meanwhile, growth in private consumption gained some impetus in Q2, expanding 7.7% annually (Q1: +7.6% yoy), supported by solid wage gains and robust private sector credit growth. In contrast, public spending was muted, growing 0.3% (Q1: +6.3% yoy), likely the result of the government’s consolidation efforts to bolster public finances.
Going forward, economic growth will likely moderate slightly in the second half of the year, partly due to softer domestic demand. Private consumption will likely weaken as price pressures pick up and the weaker ringgit drags on consumers’ purchasing power, while the government’s attempts to cut the fiscal deficit will drag on public consumption. Global trade tensions also pose a significant risk to the outlook for the external sector.
FocusEconomics Consensus Forecast panelists expect GDP to grow 4.4% in 2019, which is down 0.1 percentage points from last month’s projection. For 2020, the panel also sees economic growth of 4.4%. A new FocusEconomics Consensus Forecast will be published 20 August.