KUCHING: Bank Negara Malaysia’s (BNM) outlook for this year sees emerging economies leading the advanced economies in a two-speed and uneven recovery.

BNM forecasted moderate growth of five to six per cent for Malaysia. Growth in Malaysia was expected to be driven by domestic demand, particularly the private sector, though the government continues to play a role in supporting growth this year.

“Where we depart from BNM estimates is in our more conservative estimates for private investment (7.9 per cent compared with BNM’s 9.7 per cent), and more aggressive expansion in total trade (exports: 4.4 per cent compared with 2.7 per cent; imports: 4.8 per cent compared with 2.8 per cent),” noted Michelle Chia, ECM Libra Capital Sdn Bhd’s (ECM Libra) economist.

Chia pointed out that on the supply side, growth in the services sector was buttressed by domestic-oriented industries, in particular the wholesale and trade, finance and insurance, and communication sub-sectors.

“Growth in export-oriented industries slowed from the dizzying pace of 2010, as inventory restocking were completed and base effects waned. The E&E (electrical and electronics) cluster of manufacturing could slow more sharply than dictated by global demand, as a consequence of supply disruption in Japan,” she highlighted.

The ECM Libra economist stated that while household indebtedness had reached a 75.9 per cent of gross domestic product (GDP), the debt to financial assets ratio of 41.9 per cent provided some buffer while non-performance loans (NPLs) remained low at 2.3 per cent.

“Nonetheless BNM voiced concerns over the ease of access to financing, pointing to the extension of credit to unqualified borrowers as one example,” Chia said.

According to her, in addition to the 70 per cent loan-tovalue cap on third mortgages, other pre-emptive measures that BNM was focusing on were new guidelines on prudent and responsible lending practices due out in the third quarter of this year (3Q11).

It was also looking at a financial stability executive committee, composed of BNM and non-BNM members to oversee risks to financial stability; introduction of a new financial sector blueprint in June that aimed to improve resilience against disruptions in the financial system and broader economy.

BNM stated that its expectations for headline inflation in 2011 would be in the range of 2.5 per cent to 3.5 per cent, primarily a result of rising commodity prices.

“This was lower than BNM’s estimates for inflation in neighbours like Singapore (three to four per cent) and Thailand (three to five per cent), despite high energy price sensitivity and energy utilisation,” she affirmed.

BNM remained tightlipped about potential interest rate hikes, though it acknowledged that ‘the degree of accommodation may need to be ’ to manage inflation risks.

“BNM’s inflation estimates suggest that at the current OPR (overnight policy rate) of 2.75 per cent, Malaysia could be exposed to negative real interest rates by 2H11 (the second half of this year).

Hence we maintain expectations of two 25 bps (basis points) hikes in 2H11, with the first likely in the July monetary policy meeting,” she said.