The government projects the economic growth to pick up in 2012, with gross domestic product (GDP) expanding between 5% and 6%. This is a more upbeat forecast compared with the 5% and 5.5% GDP growth expected in 2011 following headwinds from the US and Europe banking crisis.

According to the Economic Report 2011/2012 released on Friday, Oct 7, the Malaysian economic growth would be largely domestic driven due to rising uncertainties in the global economy. The government targets to overall deficit to GDP to shrink to 4.7% in 2012 from 5.2% in 2011. Overall, the government expects the country's strong economic fundamentals, pragmatic macroeconomic policies and the Economic Transformation Programme (ETP) to enhance domestic sources of growth.

"Domestic demand, in particular private sector expenditure, is expected to play a more significant role in driving economic expansion in 2012," it said.

A snapshot of the GDP growth for 2012 shows construction taking the lead, with growth anticipated to double to 7% from 3.4% in 2011. Manufacturing is expected to maintain its growth of 4.5%, similar to 2011 while services are expected to record marginal increase of 6.5% from 6.4%.

The government expects the mining and quarrying sector to stage a turnaround from a negative 2.4% in 2011 to a 2.5% growth in 2012. However, the agriculture sector to grow at a slower pace of 4.1% in 2012 (from 4.7% in 2011).

On the demand side, it expects domestic demand to grow 7.6% in 2012 (8.1%), private expenditure 8.7% (8.3%) of which consumption is expected to pick up to expand at 71.% (6.6%) and investment easing to 15.9% (16.2%).

As for public expenditure, it is expected to slow down to 4.7% (7.6%) of which consumption is expected to shrink to 3.0% (8.9%) but investment to rise to 7.0% (6.0%).

Services
The report said the services sector for 2012 would be underpinned by the wholesale and retail trade, finance and insurance as well as communication sub-sectors. The implementation of the Entry Point Projects (EPPs) are expected to give the sector a boost and the contribution of the services sector is expected to increased to 58.9% of GDP.

Manufacturing
As for manufacturing, the growth for 2012 would be underpinned by the resource-based sub-sectors in the domestic industries. "Demand for electrical and electronics (E&E) is expected to be driven by resumption of
restocking activity, given the low level of global inventory as reflected in the book-to-bill ratio," it said.

Construction
The construction sector is expected to grow at a stronger pace of 7% in 2012 as large infrastructure projects and housing construction activities pick up.

Agriculture
The agriculture sector is expected to grow at a slower pace, underpinned by the plantation sector — oil palm and rubber. It projects fresh fruit bunches (FFB) yields to increase 21 tonnes per hectare from 20.8 tonnes in 2011.

Mining
The mining sector is expected to pick up following higher production of crude oil and natural gas especially from . Crude oil production (including condensates) is expected to expand 3.3% to 620,000 bpd (2011 -6%; 600,000 bpd), on higher production from new oil fields.

Domestic Demand
The report said on the demand side, growth in private consumption was expected to be broad-based, growing at 7.1% in 2012 (6.6%), underpinned by steady consumer confidence with stable employment outlook and higher household income.

Private investment is expected to growth at a slower pace of 15.9% in 2012 (16.2%) after hitting a high of 17.7% in 2010.

As for public expenditure, the government is trimming its spending for 2012 and spending would be capped at 4.7% in 2012 (7.6%). While public consumption is expected to shrink more than half to 3% (7%) investment is expected to see a slight increase to 7% (6%).