22/03/2012 (The Star) - The economy is projected to grow by 4% to 5% this year, with domestic demand remaining the anchor of growth as it has been over the past few years.

Following the strong expansion in 2011, the growth of both private consumption and investment is projected to soften in 2012, as both income and capital expenditure in the external-related sectors of the economy are affected by the slower global growth.

Several risks, however, remain. These risks include a deterioration in the eurozone sovereign debt crisis, and much slower growth in Malaysia’s major trading partners. Should growth in the advanced economies turn out to be stronger than expected, there is some upside potential to domestic growth this year.

Measures contained in Budget 2012 will nonetheless provide support to private consumption, which includes the one-off financial assistance to low and middle-income groups and the higher increment of public sector wages.

Domestic demand will continue to be the main driver of growth, with the rate of expansion remaining resilient at 6.6%. The weaker global growth outlook is likely to affect both income and capital expenditure in the external-related sectors of the economy, thus constraining the overall momentum in private consumption and investment.

The slight moderation of consumer expenditure is mainly attributed to moderating income in the private sector. The expected moderation of rubber and crude palm oil prices during the year may also adversely affect the incomes of smallholders.

The higher salary increment for the civil servants and the temporary income support initiatives that were announced in Budget 2012 will provide support to private consumption.

Private investment will be supported by continued investment by domestic-oriented industries and the ongoing implementation of projects under the Economic Transformation Programme.

Despite the large amount of investment approved in 2010 and 2011, some companies, especially in the export sector, can be expected to delay their investment plans due to the increased uncertainty about global prospects. Some capital spending projects, nevertheless, will continue, especially in the resource-based industries and new growth areas encompassing renewable energy and advanced electrical and electronics products.

The public sector will remain supportive of growth this year, with higher capital expenditure by both the Federal Government and the non-financial public enterprises.

The Government’s fiscal deficit is projected to moderate to 4.7% of gross domestic product in 2012 from 5% last year.

On the supply side, most sectors will continue to expand this year. Slower growth in global demand may adversely affect export-oriented industries in the manufacturing sector as well as trade-related industries in the services sector.

The performance of domestic-oriented industries, on the other hand, is expected to remain firm, benefiting from resilient domestic demand conditions. The manufacturing sector is expected to grow by 3.9% from 4.5% last year.

The services sector is projected to continue to drive growth this year. Growth, which is projected at 5.1% compared with 6.8% in 2011, will be supported by consumer-related sub-sectors, which is likely to cushion the effects of slower trade-related activity during the year.

The construction sector is projected to record a stronger growth with a projected rate of 6.6% compared with 3.5% in 2011, supported by the implementation of major infrastructure projects and the Special Stimulus Package.

Growth in the mining sector is also expected to strengthen to 0.6% from a contraction of 5.7% last year.

However, the agriculture sector is likely to register a more moderate growth of 3.8% from 5.6% in 2011 mostly on account of lower growth of both palm oil and natural rubber following the strong performance seen last year.

Headline inflation is expected to moderate in 2012, averaging between 2.5% and 3.0%.

The current account surplus is projected to remain large at RM109.5bil or 12.2% of gross national income.