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MEO 1Q 2012

Executive Summary

The still unresolved euro zone sovereign debt crisis is expected to dampen the rate of recovery of the global economy in 2012. Structural issues like high unemployment, continued de-leveraging by banks, and restrained credit conditions continue to plague growth in the advanced economies. There are signs of a hard landing in China, which will not help.

The IMF, in its WEO Update in January 2012, projected global output to expand by 3.25 per cent in 2012 - a downward revision of about 0.75 percentage point from the September 2011 WEO. It expects a mild recession in the euro zone economy, and slowing growth in emerging and developing economies in 2012.

The Malaysian economy continued to expand in 2011, albeit at a slower rate compared to the previous year. Real GDP grew 5.1 per cent year-on-year in 2011, down from 7.2 per cent in 2010. The country's economy continued to depend on domestic demand to drive GDP growth against a backdrop of bleak economic developments overseas. Public sector consumption grew significantly in the second half of the year to keep 2011's real GDP growth above the 5 per cent level. As expected, external demand, to some extent, kept to the sidelines in 2011. It declined significantly year-on-year in the first and last quarters of the year.

Inflation was relatively benign in 2011. In February 2012, Malaysia's headline inflation rate softened for the fourth consecutive month. Year-on-year, headline inflation grew 2.2 per cent, a 14-month low. Bank Negara kept the Overnight Policy Rate (OPR) unchanged at 3.0 per cent at its Monetary Policy Committee Meeting on 9 March 2012, a move that is in line with the recent moves by many other central banks to maintain their interest rates.

The results of MIER's first quarter Consumer Sentiments Survey and Business Conditions Survey suggest that both consumer and business confidence was up in the first quarter. The first quarter Consumer Sentiments Index rose 8 points quarter-on-quarter to settle higher at 114.3 points. The Business Conditions Index meanwhile reversed its downtrend to settle higher at 116.5 points, up from 96.6 points in the previous quarter.

Taking into account the gains in MIER's CSI and BCI, the performance of Malaysia's macroeconomic indicators, and expected sustained 10MP spending and implementation of ETP projects propping up domestic demand in Malaysia, we are upgrading our 2012 growth forecast from 3.7 per cent to 4.2 per cent.

Posted by suzy at 02:50 PM