OPTIMISM is growing that economic growth could exceed Bank Negara Malaysia’s projection of 4.3% to 4.8% this year. As at last Friday, at least two economists had raised their gross domestic product growth forecast for this year above the central bank’s projection after the 1Q2017 GDP figure came in at 5.6% — the highest since 1Q2015, beating consensus market expectation of 4.8%.

Citi Research raised its forecast to 5.2% while UOB Bank Malaysia increased its estimate to 5% last Friday  — at the upper range of the Ministry of Finance’s 4% to 5% forecast in the Economic Report 2016/17, which was released last October. Previously, both houses expected 4.5% growth this year. MIDF Research, meanwhile, maintained its 4.9% forecast last Friday.

“While we had anticipated the strength of exports and consumption, the main upside surprise came from investments and foreign direct investment (FDI), helped by a competitive ringgit, stronger external demand and tightening capacity,” Citi Research economist Kit Wei Zheng writes in a May 19 note.

Fuelling the strength of the much better-than-expected 1Q GDP performance were the doubling of domestic demand, led by a turnaround in public consumption, and a sharp pick-up in private investment, largely on manufacturing capital expenditure. Private consumption also accelerated, helped by BR1M cash transfers, the Citi note says.

“The surprise upside was mainly from stronger services activity (5.8%). Other key sectors also recorded stronger expansion — manufacturing (5.6%), construction (6.5%) and agriculture (8.3%), while mining growth softened (1.6%),” says UOB Bank Malaysia’s Julia Goh in a note last Friday.

Sectoral-wise, agriculture rebounded sharply on recovering crude palm oil and rubber production, rising by 8.3% in 1Q2017 compared with a negative 2.5% in 4Q2016 and negative 3.8% in 1Q2016. The construction, services and manufacturing sectors were also stronger than the quarter before while mining declined, according to Bank Negara data.

It is worth noting that Malaysia’s current account surplus narrowed to RM5.3 billion (1.7% of gross national income and 1.6% of GDP) from RM12.5 billion in 4Q2016, below consensus expectations of RM6.6 billion. It is also below the RM8 billion estimated by Goh, who expects the current account surplus to be 1.5% of GDP this year. Citi had expected 2.5%.

The lower current account surplus was “led by a narrower goods surplus and, to a lesser extent, a wider services and income deficit. The financial account deficit narrowed as larger inflows in net direct investments and other investments offset larger portfolio outflows. In particular, quarterly FDI reached a new high of RM17 billion (4Q2016: RM13 billion). With the stabilising ringgit reducing foreign exchange revaluation effects on reserves, net errors and omissions narrowed sharply”, the Citi report read.

Citi now expects the current account balance to narrow to 2.2% of GDP, noting that a strong pipeline of infrastructure investments could see the flip side of stronger capital goods imports, which could weigh on the current account balance.

Not everyone is convinced that the economy can deliver stronger-than-expected growth.

Bank of America Merrill Lynch and Standard Chartered, which updated their forecasts last Friday, were still looking at 4.2% and 4.1% GDP growth respectively, according to Bloomberg data at the time of writing. Mean and median forecasts from 34 contributors were still 4.4% for 2017 and 4.5% for 2018. Moody’s was the most optimistic with a 6% forecast since February.

Still, with 1Q GDP coming in at 5.6% (the highest since 5.8% in 1Q2015), the economy only needs to grow 3.87% on average in the remaining three quarters of this year to meet Bank Negara’s minimum projection of 4.3% growth. That looks promising, given that the slowest annual quarterly growth charted in the past six years was 4% in 2Q2016, 4.1% in 1Q2016 and 4.3% in 3Q2016 and 1Q2013. Most of the slower growth came in 2016, a tough year when global economies recorded their lowest growth rates in the past decade.

To beat Bank Negara’s higher end projection of 4.8%, the economy needs to grow at least 4.53% every quarter for the rest of this year. Quarterly growth had been above 4.8% in 16 out of the past 25 quarters (64% between 1Q2011 and 1Q2017).