KUALA LUMPUR (March 21): The economy is expected to grow at between 4% and 5% in 2012, with domestic demand continuing to underpin growth, according to the Bank Negara Malaysia annual report 2011.
The slower growth would be amid more challenging external environment and the central bank expects growth in both private consumption and investment to soften in 2012, according to the report which was released on Wednesday.
“The GDP growth projection of between 4% and 5% in 2012 is premised upon the expectation of a moderation in global growth and the timely and full implementation of measures announced in the 2012 Budget,” it said.
BNM’s GDP projection was lower than the government’s earlier projection of between 5% and 6% for 2012 announced in the 2012 Budget.
Several risks confronting the economy were deterioration in the eurozone sovereign debt crisis and much slower growth in Malaysia’s major trading partners.
However, should growth in the advanced economies turn out to be stronger than expected, there was some upside potential to domestic growth in 2012.
The central bank said the authorities had sufficient policy flexibilities and tools to support the domestic economy and manage the international challenges, should conditions warrant it.
BNM added some measures announced in the 2012 Budget were expected to provide support to private consumption. These include the one-off financial assistance to low- and middle-income groups and the higher increment of public sector wages.
It expected private investment to be supported by continued investment by domestic-oriented industries and the ongoing implementation of projects under the Economic Transformation Programme (ETP).
It said the public sector would remain supportive of growth in 2012, with higher capital expenditure by both the Federal Government and the non-financial public enterprises (NFPEs).
The implementation of the Special Stimulus Package through Private Financing Initiative announced in the 2012 Budget would provide further impetus to real activity during the year.
Domestic demand
On the demand side, BNM said domestic demand would continue to be the main driver of growth in 2012, with the rate of expansion remaining resilient at 6.6% (2011: 8.2%).
It said the weaker global growth outlook was likely to affect income and capital expenditure in the external-related sectors of the economy, thus constraining the overall momentum in private consumption and investment.
However, the public sector was expected to remain supportive of growth, driven by higher capital expenditure by both the Federal Government and the NFPEs.
Private sector expenditure was expected to grow at a slower pace of 8.2% (2011: 6.6%)
Private consumption was expected to remain strong in 2012 at 6.2% , though slightly lower that 2011’s 6.9%.due to a slight moderation of consumer expenditure. BNM said this was mainly attributed to moderating income in the private sector.
Private investment was expected to expand at a more moderate pace of 8.3% (2011: 14.4%).
“Continued investment by domestic-oriented industries is expected to mitigate the anticipated moderation in investment by export-oriented industries. The ongoing implementation of projects under the ETP will also augment private investment activity,” it added.
BNM said public consumption was expected to record only 0.2% (2011: 16.8%) mainly due to of a significant moderation in the expenditure on supplies and services as the government was expected to continue with its consolidation efforts.
However, public investment was expected to pick up strongly at 16.2% after contracting 2.4% in 2011 due to slower implementation of new 10MP projects then.
“Growth will be supported by higher Federal Government development expenditure and NFPEs’ investments in the mining and transportation sectors,” it said.
Supply side
On the supply side, BNM expected most sectors to continue to expand in 2012 but slower growth in global demand might adversely affect export-oriented industries in the manufacturing sector as well as trade-related industries in the services sector.
As for domestic oriented industries, the central bank expected this sector to remain firm, underpinned by resilient domestic demand conditions.
BNM expected the CONSTRUCTION [] sector to grow at 6.6% (2011: 3.5%), supported by the implementation of major infrastructure projects and the Special Stimulus Package.
The mining sector was expected to record positive growth of 0.6% from a contraction of 5.7% in 2011.
However, the agriculture sector was likely to record 3.8% growth (2011: 5.6%) mostly due to lower growth of both palm oil and natural rubber following the strong performance in 2011.
The manufacturing sector was expected to slow down to 3.9% (2011: 4.5%) due to the anticipated slower activity in the export-oriented industries.
The services sector was also expected to growth at a slower pace of 5.1% (2011: 6.8%), supported by consumer-related sub-sectors, which was likely to cushion the effects of slower trade-related activity during the year.
Headline inflation was expected to moderate in 2012, averaging between 2.5% and 3.0% due to a moderation in global commodity prices and the weaker global growth outlook.
On the external front, the current account surplus was projected to remain large at RM109.5 billion or 12.2% of gross national income (GNI).
BNM said gross exports were expected to grow at a slower pace in 2012.
Labour market conditions
On the labour market conditions, it expected the unemployment rate to increase to 3.2% of the labour force in 2012 (2011: 3.1%).
“Income growth in 2012 will be affected by the cautious economic outlook, which affects firms’ decisions on salary increments and bonus payments,” it said.
BNM said job creation was projected to be concentrated in the domestic-oriented sectors, particularly in the services and construction sectors, as domestic demand was expected to remain firm.
However, employment in the export-oriented sectors might be affected by the weakening external demand, it said.
The central bank said financial stability was expected to remain intact, underpinned by well-capitalised financial institutions which would continue to provide support for financial intermediation in the economy.
“Given the comfortable level of reserves and relatively low external debt, Malaysia is well positioned to manage volatile capital flows under the current environment of continued volatility in the international financial markets,” it said.
The slower growth would be amid more challenging external environment and the central bank expects growth in both private consumption and investment to soften in 2012, according to the report which was released on Wednesday.
“The GDP growth projection of between 4% and 5% in 2012 is premised upon the expectation of a moderation in global growth and the timely and full implementation of measures announced in the 2012 Budget,” it said.
BNM’s GDP projection was lower than the government’s earlier projection of between 5% and 6% for 2012 announced in the 2012 Budget.
Several risks confronting the economy were deterioration in the eurozone sovereign debt crisis and much slower growth in Malaysia’s major trading partners.
However, should growth in the advanced economies turn out to be stronger than expected, there was some upside potential to domestic growth in 2012.
The central bank said the authorities had sufficient policy flexibilities and tools to support the domestic economy and manage the international challenges, should conditions warrant it.
BNM added some measures announced in the 2012 Budget were expected to provide support to private consumption. These include the one-off financial assistance to low- and middle-income groups and the higher increment of public sector wages.
It expected private investment to be supported by continued investment by domestic-oriented industries and the ongoing implementation of projects under the Economic Transformation Programme (ETP).
It said the public sector would remain supportive of growth in 2012, with higher capital expenditure by both the Federal Government and the non-financial public enterprises (NFPEs).
The implementation of the Special Stimulus Package through Private Financing Initiative announced in the 2012 Budget would provide further impetus to real activity during the year.
Domestic demand
On the demand side, BNM said domestic demand would continue to be the main driver of growth in 2012, with the rate of expansion remaining resilient at 6.6% (2011: 8.2%).
It said the weaker global growth outlook was likely to affect income and capital expenditure in the external-related sectors of the economy, thus constraining the overall momentum in private consumption and investment.
However, the public sector was expected to remain supportive of growth, driven by higher capital expenditure by both the Federal Government and the NFPEs.
Private sector expenditure was expected to grow at a slower pace of 8.2% (2011: 6.6%)
Private consumption was expected to remain strong in 2012 at 6.2% , though slightly lower that 2011’s 6.9%.due to a slight moderation of consumer expenditure. BNM said this was mainly attributed to moderating income in the private sector.
Private investment was expected to expand at a more moderate pace of 8.3% (2011: 14.4%).
“Continued investment by domestic-oriented industries is expected to mitigate the anticipated moderation in investment by export-oriented industries. The ongoing implementation of projects under the ETP will also augment private investment activity,” it added.
BNM said public consumption was expected to record only 0.2% (2011: 16.8%) mainly due to of a significant moderation in the expenditure on supplies and services as the government was expected to continue with its consolidation efforts.
However, public investment was expected to pick up strongly at 16.2% after contracting 2.4% in 2011 due to slower implementation of new 10MP projects then.
“Growth will be supported by higher Federal Government development expenditure and NFPEs’ investments in the mining and transportation sectors,” it said.
Supply side
On the supply side, BNM expected most sectors to continue to expand in 2012 but slower growth in global demand might adversely affect export-oriented industries in the manufacturing sector as well as trade-related industries in the services sector.
As for domestic oriented industries, the central bank expected this sector to remain firm, underpinned by resilient domestic demand conditions.
BNM expected the CONSTRUCTION [] sector to grow at 6.6% (2011: 3.5%), supported by the implementation of major infrastructure projects and the Special Stimulus Package.
The mining sector was expected to record positive growth of 0.6% from a contraction of 5.7% in 2011.
However, the agriculture sector was likely to record 3.8% growth (2011: 5.6%) mostly due to lower growth of both palm oil and natural rubber following the strong performance in 2011.
The manufacturing sector was expected to slow down to 3.9% (2011: 4.5%) due to the anticipated slower activity in the export-oriented industries.
The services sector was also expected to growth at a slower pace of 5.1% (2011: 6.8%), supported by consumer-related sub-sectors, which was likely to cushion the effects of slower trade-related activity during the year.
Headline inflation was expected to moderate in 2012, averaging between 2.5% and 3.0% due to a moderation in global commodity prices and the weaker global growth outlook.
On the external front, the current account surplus was projected to remain large at RM109.5 billion or 12.2% of gross national income (GNI).
BNM said gross exports were expected to grow at a slower pace in 2012.
Labour market conditions
On the labour market conditions, it expected the unemployment rate to increase to 3.2% of the labour force in 2012 (2011: 3.1%).
“Income growth in 2012 will be affected by the cautious economic outlook, which affects firms’ decisions on salary increments and bonus payments,” it said.
BNM said job creation was projected to be concentrated in the domestic-oriented sectors, particularly in the services and construction sectors, as domestic demand was expected to remain firm.
However, employment in the export-oriented sectors might be affected by the weakening external demand, it said.
The central bank said financial stability was expected to remain intact, underpinned by well-capitalised financial institutions which would continue to provide support for financial intermediation in the economy.
“Given the comfortable level of reserves and relatively low external debt, Malaysia is well positioned to manage volatile capital flows under the current environment of continued volatility in the international financial markets,” it said.
