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MEO 4Q 2010

Executive Summary

Economic recovery, which started in mid-2009, will continue in 2011. Developing Asia with better economic fundamentals and stronger domestic demand is set to lead global growth. Developed economies will suffer from ongoing sovereign debt issue and deleveraging prospect. High growth economies of developing Asia will face rising inflationary pressures, leading to further policy tightening measures. Inflation will be contained in the developed nations, delaying interest rate hikes to possibly end-2011. Developing Asia currencies will appreciate against the USD, while other major currencies likely consolidate vis-a-vis the USD.

In Malaysia, economic growth is projected to moderate to 5.2% yoy in 2011, before rising to 5.5% in 2012. Structural impediments in net exports will drag down overall GDP growth in 2011, while domestic demand likely strong due to supportive government policy measures. Moreover, this is also supported by the in-house CSI which surged to 117.2 in 4Q10. Other upward trending indices include CEO, RPI, and TMI. In contrast, AII, BCI, and RTI declined in 4Q10, possibly due to somewhat cautious outlook ahead.

With GDP growth within the potential level of 5.0-6.0%, coupled with manageable CPI forecast of 2.8% yoy in 2011; the BNM is expected to lift the OPR marginally higher to 3.00% by end-2011. As the economy gathers momentum in 2012, CPI may breach BNM's implicit target of 3.0% prompting further hikes in OPR to 3.25%..

The RM/USD is projected to hit 3.05 in 2011 on larger capital inflows. Improving macroeconomic fundamentals will see an average RM/USD of 2.95 in 2012..

Posted by suzy at 08:31 AM