The global economic activity is showing signs of improvement, albeit at an uneven pace. Growth in the major advanced economies remains constrained by ongoing fiscal consolidation and weak labour market conditions. In Asia, growth is supported by sustained domestic demand and a gradual recovery in external demand. Stress in the international financial markets has also receded. Notwithstanding these improvements, downside risks to the prospects for global growth still remain.
In the domestic economy, a broad set of indicators suggests robust expansion in the fourth quarter of 2012. Growth was driven by sustained domestic consumption and investment activity with some improvements in the external sector. Looking ahead, domestic demand is expected to continue to expand, underpinned by firm private sector activity. Private consumption will be supported by income growth and stable employment conditions while investment will be led by capital spending in the domestic-oriented sectors, the oil and gas industry and the on-going implementation of infrastructure projects. The external sector is also expected to gradually improve and provide additional support to the economy.
Domestic headline inflation averaged 1.6% in 2012. In 2013, inflation is expected to be higher but to remain modest. Selected global food prices and domestic factors are expected to increase costs and contribute to higher prices. Nevertheless, given modest global growth prospects, pressures from global commodity prices is expected to be contained.
The MPC considers the current stance of monetary policy to be supportive of the economy while inflation remains contained. In addition to domestic conditions, the MPC will continue to carefully assess the global economic and financial developments and their implications on the overall outlook for inflation and growth of the Malaysian economy.