Zeti: Strong local demand, higher govt spending to drive growth

KUALA LUMPUR: Strong domestic demand, increased government spending and major projects will be the growth drivers for Malaysia's economy this year.


Bank Negara Malaysia governor Tan Sri Zeti Akhtar Aziz said the economy had been driven by domestic demand for the last three years and this will continue into 2012.

So will private sector investment, which had been growing significantly in the past two years, she said, adding that the positive growth will not only come from domestic demand but also from the region.

"From the financial component of domestic demand is the increase in government spending and major projects ... this will be our drivers for growth this year," Zeti said when met by reporters after attending the European Union-Malaysia Chambers of Commerce and Industry's quarterly discussion here yesterday.

She was earlier asked if the slowdown in the January export growth will be an indicator of the direction of the economy in the first half of the year.

Zeti said Malaysia has not been spared by global developments, especially those in Europe and the US, but with more than 50 per cent of the country's trade is with Asia, its export demand has been somewhat sustained.

"More than 50 per cent of our trade is with Asia (and) because of the growing domestic demand in Asia, it has become a huge market for our exports and this has sustained some of the export demand."

Asked on the three per cent interest rate, Zeti said the central bank is monitoring the risks to inflation, but for now, the rate is "accommodative" to the economy.

Earlier in her speech, she said the dynamic pace of innovation in Islamic finance has made it an increasingly important channel for the efficient allocation of funds across borders and the diversification of risks.

"The adoption of profit and risk-sharing, transperancy and disclosure and the universal ethical values of fairness provides the internal checks and balances."

Zeti noted there are now more than 600 Islamic financial institutions operating in more than 75 countries in both Muslim and non-Muslim jurisdictions.

"From an outstanding amount of US$33 billion (RM100 billion) in 2006, the sukuk market has expanded to US$180 billion (RM544 billion) as at end 2011," she said.

She added that the sukuk market has been growing at an average rate of 40 per cent yearly.