The Malaysian economy remains resilient amid persistent high world crude
oil prices, rising inflationary pressures and monetary tightening, especially
in the major advanced economies.
Its expansion has been in line with strong global growth, particularly
in the US and Asia, despite earlier concerns associated with rising oil prices.
Growth in the US remains favourable despite hikes in interest rates. In
the Asian region, growth continues to expand driven by strong domestic demand
and supported by increasing intra-regional trade.
In Malaysia, the strong growth was driven by robust domestic demand and
favourable export performance.
Growth was supported by favourable financing and stable labour market
conditions, while the Government’s strategic decision to abandon a fixed
exchange rate (ringgit versus the US dollar) for a managed float was well
received and further boosted investor and consumer confidence.
These factors, coupled with pro-business policies and political
stability, continue to provide policies and political stability, continue to
provide the enabling environment for the economy.
Real gross domestic product growth expanded at a strong pace of 5.9
percent in the second quarter, after 5.5 percent growth in the first quarter of
2006. This is expected to continue in the coming quarters to average 5.8
percent for the year as a whole.
Growth is expected to be stronger and broad-based in the second half of
2006. With positive contribution by all sectors, led by services, manufacturing
and agriculture.
Strong domestic consumption and continue expansion in trade-related
activities are expected to support growth in the services sector, especially in
the wholesale and retail trade, hotels and restaurants, transport, storage and
communication and financial services sub-sectors.
The global uptrend in demand for electronics will impact positively on
Malaysia’s exports of electrical and electronic products, leading to a stronger
growth in manufacturing output.
Meanwhile, high commodity prices, in particular of rubber and palm oil,
are expected to boost output and generate higher income for smallholders and
farmers as well as commodity-based companies.
The monetary policy this year continues to emphasise growth with price
stability, with the Government balancing the need to rein in inflationary
pressure while ensuring a conducive environment for investment and business
activities.
Inflation edged up to 3 percent last year and 3.9 percent in the first
seven month of 2006, due to largely to higher administered retail prices of
petroleum products.
However the rise in inflationary pressures was mitigated somewhat by the
appreciation of the ringgit, which helped to lower the cost of imports.
For 2006 as a whole, inflation is projected at 3.7 percent, after
factoring in the Government’s commitment to not rise further the retail prices
of petroleum products in the remaining months of the year and the modest impact
of the upward revision electricity tariffs.
On the external front, Malaysia continued to record a trade surplus.
With continued inflows of foreign capital, the overall balance of
payments should remain strong in 2006, further strengthening the nation’s
economic fundamentals as well as boosting investor confidence.
