BNM maintains GDP growth 5% to 6% this yr

KUALA LUMPUR: Bank Negara Malaysia is maintaining its full year GDP growth forecast of 5% to 6% for 2011 but is monitoring global economic conditions given the uncertainties in the US and Europe.

BNM governor Tan Sri Dr Zeti Akhtar Aziz said on Wednesday, Aug 17 these developments certainly posed a risk to the rest of the world as it would result in mid-term volatility.

“If this continues, it will generate uncertainty and affect confidence which contribute to slower growth,” she said at a press conference at Bank Negara to announce the second quarter GDP data.

Malaysia's economy grew at a slower pace of 4.0% in 2Q2011 compared with 4.9% in 1Q11, weighed down by the manufacturing sector following a weaker external environment.

The manufacturing sector was impacted by the overall weakness in the advanced economies and the disruptions in the global manufacturing supply chain due to the disaster in Japan.

"Given the 1H performance, GDP growth for full year will be close to 5%. We will not revise at this stage but we will continue to monitor and announced in October (during the Budget 2012) if any changes are made," she said.

BNM will still maintain its full year inflation forecast of 2.5% to 3.5%. However, Zeti said it would be closer to the higher end as global headwinds are still a concern.

"Inflation depends on what happens to global commodity and energy prices. If a strong recovery happens, we will see a strong commodity prices. at this point of time, we are not reviewing our projections," she said.

She added that BNM had also priced in higher crude oil prices in our estimations than current prices.

On the appreciating ringgit, Zeti said that the foreign exchange market has remained orderly which allowed two-way trade and foreign direct investments to take place efficiently.

"The appreciation has been absorbed by the Malaysian economy which is flexible in managing foreign exchange transactions," she said.

She added growth would be sustained in 3Q11 due to Malaysia's strong consumption supported by labour market conditions and easy access to financing.

"FDI has also gained momentum, which will support domestic growth," she said, adding that 2H11 growth was be stronger due to a lower base in 2H2010.

She said fundamentals remained strong due to low unemployment rate, strong financials and low external debt which result in a strong domestic demand.