The global economy continues to recover, although the growth performance differs markedly across the regions. The advanced economies continue to record modest growth. In the region, while growth has moderated amid weaker external demand, domestic activity remains robust. Global inflation is increasing primarily due to the rising energy and commodity prices. For several countries, this has been exacerbated by domestic demand conditions which have prompted policy responses. Meanwhile, most emerging economies, particularly in Asia, continue to be affected by significant shifts in global liquidity, which have increased the risks to macroeconomic and financial stability.
In the domestic economy, latest available indicators suggest continued expansion in private consumption and sustained business spending activity amid more modest growth in external demand. Going forward, economic growth is expected to be moderate in the earlier part of the year and to improve during the course of the year, driven by strong expansion in domestic demand. Private consumption will continue to be an important driver of growth, supported by sustained employment and income growth. Private investment is also projected to strengthen, underpinned by the improving outlook for the domestic economy and further expansion of new growth industries.
Domestic headline inflation has increased to 2.4% in January 2011. Driven primarily by the significant increases in global commodity and energy prices, domestic prices are expected to continue to rise. There are, however, some incipient signs that domestic demand factors could result in possible upward pressure on prices in the latter part of the year in line with the sustained expansion in economic activity.
Moving forward, while the stance of monetary policy is expected to remain supportive of growth, the degree of monetary accommodation may be reviewed given the sustained growth in the economy and risks to inflation. This is to ensure the sustainability of the growth prospects of the Malaysian economy.