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MEO 1Q 2010

Executive Summary

The world economy has recovered since the 4Q09 following numerous national policy measures, which enhanced private demand and global trade condition. However, the recovery path is uneven with developing Asia leading global growth, while advanced nations trailing behind. The strong economic expansion from developing Asia was led by China, India, and Indonesia with their relatively large domestic demand. Policymakers have begun to normalize policy rates, given rising inflation expectations and the emergence of asset bubbles.

The Malaysian economy too has rebounded in the 4Q09 by +4.5% yoy, leading to a smaller contraction of 1.7% yoy in 2009. The recovery was broad-based with all economic sectors registering strong turnaround. This along with improving consumer and business confidence allowed MIER to raise the GDP growth rate to +5.2% yoy in 2010. Economic growth is forecasted to reach +5.0% yoy in 2011..

Consumer and business confidence, as measured by MIER's Consumer Sentiment Index (CSI) and MIER's Business Conditions Index (BCI), were higher by +4.6 pts qoq and +5.2 pts qoq, respectively in 1Q10. Meanwhile, all sectoral indices also recorded modest gains in 1Q10, with the exception of Retail Trade Index (RTI) and CEO Confidence Index (CEO).

In tandem with economic recovery and higher global commodity prices, overall consumer price inflation is expected to grow by +2.2% in 2010. Since core inflation has been rising faster than overall inflation, MIER anticipates the OPR to settle at 2.75% by end-2010. Firmer economic expansion will further lift the OPR to 3.25% in 2011.

Posted by suzy at 12:56 PM