Malaysia 2011 GDP may grow 6.1pc: MIDF

Malaysia's gross domestic product (GDP) is likely to grow by 6.1 per cent this year compared with 7.1 per cent in 2010 driven by firmer domestic demand growth, says MIDF Amanah Investment Bank Bhd.

It said domestic demand growth was likely to expand between 6.3 per cent and 6.7 per cent in the second half of this year.

"Apart from private consumption, we expect private investments to accelerate as the Economic Transformation Programme moves into high gear," it said in a research note today.

It said complementing it would be exports, which were expected to benefit from the cyclical demand that should see commodity prices staying firm and also from Japan's rebuilding and to some extent the lower base effects.

However, MIDF said the worst-case scenario for 2011 growth would be 5.3 per cent should negative global issues weighed down more significantly on the domestic economy, outweighing gains from domestic demand.

MIDF said while the economy was expected to expand at a steady pace, inflation would continue to increase.

Hence Bank Negara Malaysia (BNM) would remain vigilant to the risk of excess liquidity and rising inflation, it said.

"We expect BNM to raise the overnight policy rate by another 25 basis points in the third quarter this year, bringing the full year to 3.25 per cent.

"On the statutory reserve requirement, we expect an increase of another 100 basis points to four per cent this month," MIDF said.

MIDF said inflation was expected to peak in the second quarter this year, hovering between 3.3 per cent and 3.6 per cent and averaging between three per cent and 3.3 per cent in the second half following sustained reduction in subsidy.

"Our 2011 inflation projection now stands at 3.2 per cent from 1.7 per cent year-on-year in 2010.

"On the worst-case scenario, we expect inflation to average between 3.6 per cent and four per cent should the reduction in subsidy is much more than envisaged," it said. -- Bernama