Bank Negara is projecting an improvement in the economy's growth in the coming quarters, to be sustained by the continued expansion in domestic and external demand  

Malaysia is firmly on the path to recovery and will continue to improve in the next few quarters, said Bank Negara Malaysia governor Tan Sri Dr Zeti Akhtar Aziz. "We are projecting an improvement in the economy's growth in the coming quarters," she said when presenting first quarter gross domestic product (GDP) figures.

The central bank will revise its annual growth forecast during the presentation of the fiscal budget in October. "Growth is expected to be sustained, supported by the continued expansion in domestic and external demand," she added.
 
Domestic demand is expected to be supported by favourable employment conditions and improving consumer and business confidence, while stronger regional trade and an upturn in the electrical and electronics sector will support external demand.

Zeti expects the second quarter of the year to show an improvement compared with first quarter performance although the base effects will not be the same as seen in the first

quarter. Malaysia suffered a 6.2 per cent contraction in the first quarter of 2009 when external demand fell. Downside risks to growth could come from external factors, that may cause volatility in financial markets.

HSBC Bank senior Asian economist Robert Prior-Wandesforde, who had expected 10.9 per cent growth in the first quarter, said the output breakdown showed an economy firing on all cylinders in that period.

Malaysia joins Singapore and China in the region in registering double-digit GDP growth. He, however, remarked that the main disappointment was fixed capital investment, which expanded by just 5.4 per cent and highlighted a lack of investment, "Malaysia's main structural weak spot".

"Until the country can achieve a strong, sustained rise in the investment to GDP ratio, it is hard to be optimistic about the trend growth rate."

During the first quarter, higher private consumption and sustained public sector spending supported the expansion in domestic demand by 5.4 per cent versus 2.8 per cent in the fourth quarter of last year. This was supported by improvement in labour market conditions, low inflation and improved consumer sentiment. Zeti also pointed out that gross fixed capital formation continued its positive growth momentum.

"It is important that when the fiscal stimulus (rolled out during the crisis) begins to diminish and unwind, the private sector take steps to sustain the growth momentum." On risks from the Greek debt crisis, she said that volatility in the financial market could be expected as a result of the developments in Europe and other advanced economies. "We should be able to absorb this volatility. At the macro level, we have strong reserves, strong balance of payment, current account in surplus, an external debt which is low, high savings rate as well as ample liquidity in the financial sector.

"Our fiscal position with regard to the government external debt level is only 2 per cent of the GDP," she said. During the quarter, the ringgit appreciated 4.6 per cent against the US dollar, due mainly to investor optimism of the growth prospects of regional economies.