THIS Thursday, Bank Negara Malaysia is expected to announce that Malaysia has met its GDP growth forecast of between 4% and 4.5% for 2016.

To meet official projections, the local economy need only have grown 3.5% from September to December 2016 as it had expanded 4.2% in the first nine months of the year. Official projections would only be beaten if 4Q2016 GDP surprisingly grew more than 5.5%, pushing full-year numbers above 4.5%.

The consensus is 4.1% to 4.2% for 2016, according to Bloomberg data, down from 5% in 2015 and 6% in 2014.

The good news here was delivered about a fortnight ago. On Jan 26 — instead of having to revise Budget 2017 (the 2015 and 2016 budgets were revised after Brent crude oil prices fell) — Prime Minister Datuk Seri Najib Razak was reported as saying Malaysia’s economy is expected to grow between 4.5% and 5% in 2017 on a better world economic outlook amid higher commodity prices.

Not only is that more optimistic than the 4% to 5% projection made when Budget 2017 was tabled last October but it also means that Malaysia’s economy is set to expand at a faster year-on-year rate this year after two straight years of decline.

Can Malaysia’s economy grow more than 4.5% this year?

At least a third of the 33 economists polled by Bloomberg believe that is possible, according to data seen at the time of writing. Only seven expect GDP growth in 2017 to be lower than in 2016.

For now, however, consensus expectations are for the Malaysian economy to grow between 4.2% and 4.3% in 2017, below the 4.5% revised official projection.

Still, some economists see room for an upward revision in their forecast.

“It is possible that GDP growth could be higher than our forecast if the recent outperformance in exports continues,” says Nomura Southeast Asia economist Brian Tan.

“That said, we remain cautious on the growth outlook. Manufactured exports to the US, a key source of resilience in recent years, remain vulnerable to the risk of US trade protectionism. Weaker manufactured exports and a possible erosion of LNG export volumes could also narrow the current account surplus. We believe this would force the government to slow the pace of public-sector investment and import of capital goods to keep the current account balance in surplus but that would undermine domestic demand.”

At the time of writing, Nomura, with its 2017 GDP forecast of 3.7%, was among at least six houses that saw the Malaysian economy expanding at less than 4% this year (the most bearish forecast was 3.4% by UBS). As for 4Q2016, Nomura sees GDP growth at 4.3%, similar to that in 3Q2016, to bring full-year growth in 2016 to 4.2%.

RHB Research Institute is “currently reviewing with an upside bias” its 4% economic growth projection for 2017. “In my view, 4.5% real GDP growth for 2017 could be achievable if export growth turns out to be stronger than expected,” says its executive chairman and chief economist Lim Chee Sing.

“Indeed, the recovery in the country’s exports, from a contraction in 3Q2016 to positive year-on-year growth of 7.8% in November and 10.7% in December, already suggests there is room for an upgrade in the country’s GDP growth forecast for 2017 if this trend continues. In this respect, the upward revision in the official growth forecast to 4.5% to 5% by the prime minister from 4% to 5% is understandable.”

Still, a more cautious stance on growth is also understandable. Chiefly, there is the risk that US President Donald Trump’s protectionist and anti-trade policies could cap the upside recovery in Malaysia’s exports.

A seasoned local economist points to what he calls Malaysia’s “over-reliance on consumer spending for growth” and the uncertainties dogging private investment growth. “Households are already faced with rising cost of living and softening employment market. In an environment of high household debt servicing, there is a limit to how strongly consumer spending can continue to trend higher and lift the growth of domestic demand. Private business investment is also dampened by a volatile and weak ringgit as businesses tend to hold back investment decisions in such an environment.”

As it stands, Malaysia sees economic growth underpinned by “strong domestic demand, especially private-sector expenditure”, which is made up of private consumption and investment.

“Private sector activity will be supported by pro-growth fiscal and accommodative monetary policies in an environment of stable inflation, which is projected to range between 2% and 3% in 2017 compared with 2% to 2.5% in 2016,” the Economic Report 2016/2017 reads. It is worth noting that official data has shown higher food prices nudging inflation higher, and dearer pump prices are expected to add to this.

Some respite could come from the better commodity price outlook, which tends to boost incomes and spending. Government spending in the run-up to the general election expected this year would be another boost, economists say.

The resilience of private consumption growth amid higher cost of living and tighter household budgets is a key factor to watch, says UOB Bank Malaysia economist Julia Goh. “Recent data signalled a moderation in the import of consumption goods, portending to slower consumer spending. However, the Retail Trade Index released on Feb 10 posted higher 8.4% growth in December and 7.9% in the fourth quarter. This could be in part due to year-end seasonal spending and tourist activity. A substitution effect from foreign items to local goods and trips abroad to local homestays would be a net positive for the economy.”

Goh is projecting a “mildly higher growth of 4.5%” for 2017. “We think the drivers rest on domestic demand and supportive exports. Exports have turned the corner and the green shoots in global growth and trade towards the end of last year augur well for Malaysia’s shipments. A caveat on this is the downside risk should trade conflicts escalate as a result of Trump’s potentially disruptive policies. Nevertheless, much of that remains to be seen,” she says.

Apart from higher infrastructure spending and construction activity, Goh also sees higher mining output, thanks to additional supplies of oil and gas from new fields and commercial operations. “A recovery in crude palm oil output will also support a turnaround in the agricultural sector following four quarters of contractions.”

Citi Research economists Kit Wei Zheng and Tan Yuxuan, who see Malaysia’s GDP growth at 4.3% in 4Q2016 and 4.2% for the whole of 2016, tell clients in a Feb 10 note that “robust activity may continue into 1Q2017”.

“The upside surprise in December (industrial production), a continuation from October-November, suggests that Malaysia continues to ride the recent uplift in regional trade with mining activities benefiting from strength in crude prices and E&E (electrical and electronics) participating in the tech restocking cycle that has lifted much of Asia’s exports. With the pick-up in manufacturing sales outpacing production and inventories remaining lean, the recent production strength may extend into 1Q2017,” the note reads.

If they are right, there is a stronger case for an upgrade in growth forecasts. Citi Research has put 2017 GDP growth at 4.5%, according to Bloomberg data.

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